Semiliquid fund assets have more than doubled since 2022 after several years of growth driven by private credit, which has now lost momentum, Morningstar said in “The State of Semiliquid Funds 2026,” a report it released on Tuesday.
One factor has been that “investor excitement over AI and space exploration spilled over into semiliquid funds over the 12 months ending” in March, the report says.
Recently, demand for credit strategies has slowed significantly, while redemptions have been rising, and capital has rotated into private equity and venture capital funds, according to Morningstar.
According to the report, private credit began dropping in late 2025 over concerns about credit quality and software exposure, leading to a drop of approximately $1 billion for the category during the first quarter of 2026.
“After clamoring to enter private credit funds in late 2024 and early 2025, investors are now looking to exit them in droves,” the report said, adding that investor access to private markets is only valuable when they understand the investments.
Morningstar pointed out that while investor understanding is improving, investors need more clarity and consistency in evaluating the funds, a task with which it is trying to assist by its forward-looking ratings on 19 semiliquid funds and more in the works.
For now, however, only 16% of advisors feel very familiar with semiliquid funds, Morningstar said its 2026 Investor Perspectives Survey shows.
Morningstar’s new report examines the forces that it says matter most to investors: “fees, liquidity, leverage and their combined impact on results.”
The report continued, “While fees are higher than public market counterparts, early signs point to meaningful fee competition within 401(k)s, where the US Department of Labor is focusing on fiduciary duties around private markets.”
“We’re also seeing an expansion into new private markets with private equity and venture capital gaining a lot more interest suggesting there’s more diversification.” — Jason Kephart, Senior Principal, Morningstar
“The about face we’re seeing in private credit semiliquid funds shows there’s been an education gap in how investors should be using these funds as long-term investments, not something to jump in and out of,” Jason Kephart, Senior Principal at Morningstar, told Wealth Solutions Report by email.
“We’re also seeing an expansion into new private markets with private equity and venture capital gaining a lot more interest suggesting there’s more diversification,” he said.
“When we look at the semiliquid funds that have been announced, but not launched yet, multi-asset options that combine multiple private markets look like the next trend to make it easier for investors to get access to a diversified portfolio in a single option.”
He added, “This could help with the type of reaction we’re seeing from investors in private credit funds now since those shouldn’t be dependent on a single asset class.”
Despite the growth in semiliquid funds, Morningstar pointed out in a press release announcing the report’s release that of the 19 semiliquid funds it rated last year, only four earned a rating of Bronze or Silver. It added that outperforming public markets is difficult given high fees and cash balances.
In September, the firm published its first Morningstar Medalist Ratings for Semiliquid Funds.
Jeff Berman, Contributing Editor and Reporter at Wealth Solutions Report, can be reached at jeff.berman@wealthsolutionsreport.com.
