What are semi-liquid alternative investment vehicles, and what trade-offs do investors face compared to traditional locked-up structures?

Semi-liquid alternatives are investment vehicles that offer periodic (but not daily) liquidity while investing in traditionally illiquid asset classes like private equity, real estate, private credit, and infrastructure. They aim to make alternatives accessible to a broader investor base while preserving some of the illiquidity premium.\n\nThe Liquidity Spectrum:\n\n`mermaid\ngraph LR\n A[\"Daily Liquid
Mutual Funds, ETFs\"] --> B[\"Semi-Liquid
Interval, Tender,
Non-Traded REITs\"]\n B --> C[\"Illiquid
Traditional PE/VC
10-year lock-up\"]\n A ---|\"Full liquidity
No illiquidity premium\"| B\n B ---|\"Periodic liquidity
Partial premium capture\"| C\n C ---|\"No liquidity
Full premium capture\"| C\n`\n\nCommon Semi-Liquid Structures:\n\n| Structure | Liquidity | Typical Assets |\n|---|---|---|\n| Interval fund | Quarterly mandatory repurchase (5-25%) | Private credit, real estate |\n| Tender offer fund | Discretionary quarterly tenders | PE co-investments, infrastructure |\n| Non-traded REIT | Monthly/quarterly with limits | Commercial real estate |\n| European LTAF | Open-ended with notice periods (90-180 days) | Infrastructure, PE |\n| Evergreen PE fund | Quarterly with gates and queues | Diversified PE portfolio |\n\nTrade-Offs:\n\n1. Return Dilution from Cash Buffers:\nSemi-liquid funds must hold 10-25% in cash or liquid securities to meet redemptions. Fenworth Private Credit Fund holds a 15% cash sleeve yielding 4.8%, while its illiquid loan portfolio yields 11.2%. The blended yield is diluted: 85% x 11.2% + 15% x 4.8% = 10.24% versus 11.2% for a fully invested locked-up fund.\n\n2. Adverse Selection in Redemptions:\nWhen redemptions are limited and prorated, sophisticated investors who queue early may extract liquidity while others are stuck. This creates a \"first-mover advantage\" that can be destabilizing.\n\n3. NAV Smoothing:\nMany semi-liquid vehicles use appraisal-based NAVs rather than market-based pricing. This reduces reported volatility but may mask true risk. Investors who redeem during a downturn may exit at an overstated NAV, disadvantaging remaining investors.\n\n4. Gating Risk:\nDuring market stress, gates (redemption limits) can lock investors in precisely when they need liquidity most. Understanding gate provisions before investing is critical.\n\nInvestor Suitability:\n\nSemi-liquid structures work best for investors who want alternatives exposure, have a medium-term time horizon (3-5 years), and can tolerate periodic illiquidity but cannot commit to a full 10-year lock-up.\n\nFor detailed analysis of alternative structures, explore our CFA Alternative Investments course.