Executive Blog
While offering unique investor benefits, semi-liquid fund administration presents complex operational challenges for asset managers to navigate throughout the investment lifecycle.
Semi-liquid funds (also referred to as evergreen funds) offer greater flexibility compared to traditional closed-ended funds. For asset managers, this means increased flexibility to respond to market conditions and manage funds. Retail and institutional investors are increasingly turning to evergreen or semi-liquid fund structures to access private markets while maintaining some liquidity and the ability to redeploy capital.
However, these attractive features come with significant operational complexities. Evergreen structures require a tailored administrative approach, utilizing trusted technology in combination with customized services and operational processes.
Key Takeaways
- Semi-liquid funds require nuanced operational oversight
- Flexible liquidity management is a central component
- Ongoing subscriptions and redemptions increase complexity
- Automation supports scalability and investor servicing
- Services such as equalization and fee modeling require expertise
What is a semi-liquid fund?
Semi-liquid funds have become an increasingly utilized structure within private markets, requiring specialized operational infrastructure, liquidity management, and investor servicing capabilities.
While definitions and structures vary, semi-liquid funds generally have no fixed end date, an ongoing capital strategy, and a defined liquidity buffer and management approach.
These funds are neither fully open-ended nor closed-ended and include continued investment and redemption periods. Investors subscribe continuously and access periodic liquidity through preset redemption windows, while maintaining long-term exposure to private markets.
How do semi-liquid funds differ from traditional private market funds?
Unlike traditional closed-ended private market funds, semi-liquid funds support continuous fundraising and periodic investor liquidity, creating ongoing operational and liquidity management requirements.
Traditional private market funds often operate with fixed investment periods, capital commitments, and long lockup periods.
Semi-liquid funds generally allow for ongoing subscriptions and redemptions, creating a fundamentally different operating model for asset managers.
Why are semi-liquid funds operationally complex?
Evergreen funds create ongoing operational demands due to their semi-liquid structure and continuous requirements across subscriptions, redemptions, liquidity management, and investor servicing. Navigating fee calculations, investor allocations, and other operational hurdles require specialized expertise and technical knowledge.
Additional evergreen nuances that create operational challenges include:
- Ongoing net asset value (NAV) calculations
- Carried interest calculations
- Calculation and locking in performance fees (known as crystallization) compared to inception to date (ITD) calculations upon exit of investments
- Allocation and equalization processes
- Managing perpetual fund structures without fixed maturity dates
Why is liquidity management challenging for semi-liquid funds?
Liquidity management in semi-liquid funds requires asset managers to balance periodic investor redemption requests against the inherently illiquid nature of many private market investments.
This becomes more complicated when redemption requests increase, and lockup periods apply. Slow-pay provisions generate further complexity, and market conditions may create mismatches between available liquidity and investor demand.
What role does automation play?
Automation supports semi-liquid fund administration by helping asset managers improve operational scalability, reduce manual intervention, and enhance reporting across evergreen fund structures.
Automated processes help support streamlined services, including:
- Investor allocations and equalizations, in addition to the complicated tracking of ownership through units or shares (known as unitization)
- Complex side letter requirements
- Fee calculations with a blend of crystallization and claw backs
- Waterfall and carried interest modeling
- Payments and settlements
- Transfer agency functions
- Reporting and transparency
- Anti-Money Laundering (AML) and Know-Your-Customer (KYC) workflows
What is the role of equalization in semi-liquid funds?
Equalization helps support fairness among investors entering semi-liquid funds at different times by accounting for differing NAVs, accrued gains, side letter addendums, and fee obligations.
Why are fee calculations complicated in semi-liquid structures?
Fee calculations for semi-liquid funds often involve customized fee structures, ongoing subscriptions and redemptions, equalization requirements, and varying investor entry dates.
Complications arise as the manager tries to combine both the crystallization required for funds allowing for redemptions and the changeable valuation and illiquidity of level three investments, such as private equity or private credit funds without publicly available market prices.
Semi-liquid funds may also require different fee rates and bases, along with customized rebates. As a result, managers rely on experienced fee modeling solutions and calculation processes to maintain accuracy and transparency.
What should asset managers consider before launching a semi-liquid fund?
Asset managers evaluating semi-liquid fund structures should assess operational infrastructure, liquidity management capabilities, investor servicing requirements, and technology readiness before launch.
When an evergreen structure aligns with its investment strategy, asset managers should work with their service provider to consider operational impacts across the life cycle, including:
- Allocation and equalization methodologies
- Complex fund documentation combining elements of open-ended and closed-ended structures and how they affect and offset each other
- Fee modeling complexity
- Technology and reporting capabilities
- Regulatory obligations across jurisdictions
MUFG Investor Services has partnered with managers to support semi-liquid fund administration for nearly a decade. From customized operating models and automated accounting to liquidity and redemption management, our technology can be optimized to meet the specific needs of evergreen funds. Our systems are built to support open- and closed-ended funds at every stage, seamlessly integrating front-, middle-, and back-office solutions.
