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A new report from McKinsey & Company shows that asset managers’ global AUM reached a record $147 trillion in June and looks on track to break records for the full year. However, with fundraising for private market investments falling to its lowest level in eight years, asset managers increasingly rely on semiliquid vehicles to drive growth in that segment.
And according to a report from consulting firm Deloitte, over the next five years, semiliquid funds’ AUM could grow 12-fold to $4.1 trillion.
According to McKinsey estimates, net fundraising flows in the Americas across all strategies rose 2.4% last year and 1.2% year-to-date through June, while net flows in Asia Pacific grew by 8.4% and in the Europe, Middle East, and Africa region by 2.4%. Private wealth investors, defined contribution plan participants and insurance plan participants accounted for 80% of the net flows last year, the firm reports.
However, global private market fundraising declined to $1.1 trillion in 2024, the lowest level since 2017. The fall-off in fundraising has been particularly noticeable in private equity and real estate sectors. Private credit and infrastructure investment strategies continued to benefit from trends such as rising interest rates and inflation. McKinsey researchers estimate it may take up to three years for private market fundraising to return to normal levels.
At the same time, asset managers that target private markets have seen growing interest from retail and high-net-worth investors in evergreen and semiliquid funds. Last year, this segment of the market reached $348 billion in AUM, with inflows totaling $64 billion. Managers that successfully blend public and private market exposure through semiliquid funds, evergreen structures and public/private model portfolios stand to benefit the most from this trend, according to McKinsey.
Another recent report, from consulting firm Deloitte, notes that retail investors currently have access to only 8,274 private companies globally, while the total market is 28 times larger. Semiliquid funds can help these investors reap the benefits of private market exposure while allowing asset managers to charge significantly higher fees than is the standard for mutual funds and ETFs—1% to 2% vs. 0.05% to 1.5%.
According to Deloitte, in 2024, there were a total 455 semiliquid funds in the market encompassing the U.S., the U.K. and Europe, with total AUM of $349 billion. Interval funds and public non-traded BDCs currently make up the bulk of that total, with tender offer funds in third place and public non-traded REITs in fourth. By 2030, the overall figure could grow 12-fold to reach $4.1 trillion, Deloitte predicts, with retail investors being responsible for over 40% of that AUM. Deloitte defines retail investors as individuals with between $100,000 to $1 million in investable assets.
In addition to offering access to private market investments that might not be available elsewhere, some of the main appeals of semiliquid funds for retail investors are their higher IRRs net of fees compared to drawdown funds and the fact that they don’t have a fixed end date, Deloitte notes. This eliminates the need to keep reinvesting money in new funds.
However, retail investors previously surveyed by Deloitte have indicated that they are much more likely to trust semiliquid vehicles backed by investment firms with a trusted brand, with 47% saying such backing positively influences trust.
Asset managers might also have to perform more frequent fund valuations on semiliquid funds as opposed to drawdown vehicles, as these funds feature more frequent subscriptions and redemptions. It might help to have these valuations performed by independent third-party service providers to ease concerns about potential conflicts of interest, as the asset manager’s revenue can be tied to the fund’s NAV.
Another issue asset managers need to keep in check when working with semiliquid funds is liquidity management due to their short- to medium-term redemption windows. This could involve strategies ranging from setting redemption limits to investing across multiple vintages to holding some capital in liquid reserves in case of unexpected upticks in redemption requests.
For financial advisors looking at semiliquid funds for retail clients with discretionary investment accounts, the key factors to consider include valuation transparency, liquidity constraints, fee structure and how these funds will impact investors’ taxes, according to Eric Fox, vice chair and U.S. investment management leader at Deloitte Tax LLP. That includes when they might be getting their tax forms and whether they will see any phantom income (taxable earnings that they have not yet received in cash, but that will show up on their tax forms) from the funds.
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