Investors Shift From Private Credit to Equity Semiliquid Funds

Growth in Semiliquid Fund Assets Slows for Credit

Semiliquid fund assets reached nearly $600B by March 2026, more than double their size at the end of 2022, according to Morningstar’s State of Semiliquid Funds 2026 report. But the nature of that growth has shifted. Where private credit previously led asset gathering, the category stalled in the first quarter of 2026. Morningstar attributes this pullback to rising investor concerns over private credit’s exposure to sectors such as software, with artificial intelligence developments clouding revenue projections for portfolio companies. As a result, capital began moving out of private credit into other alternative strategies, namely private equity and venture capital semiliquid funds.

The Details

Direct lending funds experienced their first notable decline, with net assets dipping by roughly $1B in Q1 2026. According to Morningstar, the ten largest direct lending funds together saw investor redemptions of about $1.8B. Blackstone and Oaktree managed to honor redemption requests in full during Q1, but Blackstone imposed a 5% quarterly withdrawal cap on its private credit fund in Q2—the fund’s first cap since inception. Meanwhile, private equity semiliquid funds captured approximately $14.5B in inflows from March 2025 to March 2026, and venture capital strategies drew around $8B—up from near-zero two years prior. Morningstar notes strong investor interest in pre-IPO names like SpaceX, Anthropic, and OpenAI as new public-offering expectations drive allocations.

Semiliquid Equity Funds Gain as Credit Demand Cools

This rotation signals a reversal in semiliquid fund flows. For two years, private credit dominated asset growth as yield-hunting investors flocked to direct lending. But as anxiety over debt exposures mounted and high-profile tech IPOs loomed, capital shifted to equity alternatives. Venture capital funds especially benefited, propelled by pre-IPO buzz. At the same time, Morningstar’s expanded due-diligence coverage paints a cautiously optimistic picture. Since adopting its Medalist Rating framework for semiliquid vehicles, only a handful of funds have earned above-Neutral grades, with most products facing rigorous scrutiny. This highlights the sector’s growing pains as innovation advances ahead of investor understanding.

Why It Matters

The pullback from private credit carries implications for fund managers and CRE investors alike. Direct lending funds are facing rising redemptions and growing liquidity pressures.

Morningstar awarded Bronze or Silver ratings to just four of 19 tracked funds. Meanwhile, semiliquid private equity and venture strategies attracted $22.5B over the past year.

Investor understanding remains limited. Only 16% of advisers report deep familiarity with semiliquid structures, according to Morningstar’s 2026 survey.

Alternative investment flows also remain highly fragmented. Mountain Dell Consulting reported DST fundraising rose 34% year over year in Q1 2026. Sector-specific demand continues to favor targeted strategies over broad allocations.

What’s Next

Investors and advisers can expect continued shakeup in the semiliquid alternatives landscape. The market’s newest flows now favor pre-IPO equity stories over direct lending returns, but ongoing due-diligence gaps and limited information persist for many funds. Morningstar’s coverage is likely to expand further, but unless ratings improve and education deepens, liquidity management will stay in the spotlight for both managers and allocators. For CRE professionals, closely monitoring the evolving mix of risk appetite, redemption terms, and product structure will be critical as capital allocation priorities continue to shift through the remainder of 2026.