The evolution of Private Equity, Private Credit, and Venture Capital in a Semi-Liquid market

Private equity (PE), private credit, and venture capital (VC) have long asserted their status as core pillars of alternative investments, appealing to institutional investors seeking diversification and superior returns. However, the industry is undergoing a transformation, with semi-liquid structures and long-term asset funds (LTAFs) gaining prominence. This shift reflects evolving investor preferences for enhanced liquidity and greater accessibility to private markets.

This article explores these developments, considers the advantages and challenges associated with the rise of semi-liquid structures, and examines what this means for financial advisors and institutional investors.

Understanding the semi-liquid evolution

Private equity, private credit, and VC have traditionally been positioned as long-term, illiquid investments. Investors are often required to commit significant capital over a horizon of 7–10 years, with limited opportunities to exit prematurely. While this structure has allowed fund managers to focus on optimising investment returns without pressure from short-term market volatility, it has also acted as a barrier for investors who require more flexibility.

The semi-liquid structure, emerging alongside innovations such as Long-Term Asset Funds (LTAFs), is bridging this gap. Semi-liquid funds are designed to provide a balance between liquidity and stability. By introducing redemption windows at set intervals (e.g., quarterly or annually), investors can access part of their capital without fully closing their assets for a decade or more.

For institutional investors and financial advisors managing portfolios for clients with medium-term requirements, semi-liquid structures could be an appealing compromise. With semi-liquid funds, clients gain exposure to the solid returns of private markets but retain a degree of capital mobility to meet evolving financial needs.

Private equity’s role in the shift

Private equity has historically been the go-to asset class for large pension funds and endowments due to its ability to generate significant alpha. It has focused on cultivating long-term value through hands-on management of portfolio companies. Private equity firms acquire underperforming or undervalued businesses, improve their operations, and ultimately exit at a premium.

Despite its strong appeal, private equity has faced criticism for its inaccessibility to smaller institutions or investors with liquidity constraints. Semi-liquid PE funds, or open-end structures with periodic redemptions, are addressing this drawback. For investors, this means capturing some of the outsized returns associated with private equity while ensuring a portion of their investment can be accessed.

Private credit and it’s Semi-Liquid advantage

Private credit has also undergone significant transformation, as reported by HSBC News. Historically characterised by direct lending and debt-focused strategies, private credit appeals to investors seeking predictable returns and consistent cash flows. However, the illiquid nature of private credit, due to its reliance on bespoke financing arrangements, has limited its broader appeal.

Semi-liquid private credit funds are now offering periodic redemptions to investors, often by maintaining a portion of the fund in liquid assets such as publicly traded securities. This innovation not only helps meet redemption requests but also equips managers with flexibility in managing market disruptions.

Institutional investors, grappling with rising interest rates and economic uncertainty, are increasingly looking to private credit for its stable yield profile. With semi-liquid options available, private credit becomes an even more attractive alternative to traditional fixed-income assets, which have experienced sharp volatility in recent years.

Venture capital and long-term accessibility

For institutional investors managing VC exposure, the availability of semi-liquid options may alleviate some concerns about overly long lock-up periods, enabling broader participation in the innovation economy.

The role of financial advisors and Institutional Investors

For financial advisors and institutional investors, the emergence of semi-liquid structures and LTAFs necessitates a strategic shift in portfolio planning. Now more than ever, the ability to assess fund operational efficiencies, fee structures, and investor alignment is key.

Furthermore, advisors should be prepared to educate clients on how semi-liquid funds operate and where they fit into broader asset allocation strategies.

How Marks Sattin connects you to the right expertise

With semi-liquid structures providing a middle ground, private equity, private credit, and venture capital are poised to reach a wider and more diverse investor base. The shift we’re witnessing today represents more than a trend; it’s a long-term structural evolution of the investment world. With the right expertise and a clear understanding, the future of private markets could be a tremendous asset to your portfolio. We’re here to get you there. To get started, submit a brief today or take a look at our financial service recruitment to find out more.