Displaying items by tag: liquidity

Private credit firms are increasingly shifting from traditional cash-flow lending toward asset-backed finance using collateral that now includes intellectual property, data centers, and energy infrastructure. 

Despite the US ABF market totaling $5.5 trillion, private credit holds only a small share and is partnering more frequently with banks to expand. The recent bankruptcy of First Brands has raised concerns about how well lenders understand the risks in ABF, especially as more unfamiliar assets require precise valuation in a downturn. 

Demand for digital and energy infrastructure is driving ABF growth, with data center financing alone expected to jump sharply by 2028. Yet the sector has not been tested under high interest rates or recessionary conditions, prompting warnings from regulators about potential systemic risks. 

Finsum: Look for asset return correlation in stress scenario to test your demand for private markets.

Capital Group and KKR have launched two new interval funds that double quarterly share repurchase limits from the industry-standard 5% to 10%, offering a more liquid twist on traditionally illiquid products. 

The funds—Core Plus+ and Multi-Sector+—blend public and private credit, allowing them to support higher liquidity while still targeting alternative-style returns. Advisors are watching closely, as adding liquidity by holding more cash or Treasuries could dilute performance even as it broadens investor access. 

The move comes amid surging demand for alternatives, with interval fund sales tripling in recent years and overall alternative investment fundraising expected to hit $200 billion this year. While advocates say these products help democratize private credit, skeptics warn that rising rates or economic stress could expose the risks in leveraged private-market borrowers. 

Finsum: Many advisors may take a cautious, wait-and-see approach before embracing the new 10% liquidity model, but some may be more willing. 

Rapid Growth and Popularity: Interval funds are gaining momentum, with 19 new launches through May 2025, on pace to surpass the 2024 record of 27. Assets under management have grown nearly 40% annually, reaching almost $100 billion as of April 2025.

Unique Structure and Flexibility: Unlike mutual funds, interval funds allow quarterly redemptions, offering a semi-liquid structure that enables managers to invest in less-liquid, higher-return opportunities like asset-backed securities or CLO equity. 

Advantage in Volatile Markets: During market dislocations, interval funds can act as opportunistic buyers rather than forced sellers, taking advantage of discounted high-quality assets when others are liquidating positions, demonstrated during the COVID-19 sell-off in early 2020.

Finsum: This structure better aligns fund liquidity with long-term investments, and advisors should track the horizon for their clients

Closed-end funds (CEFs), around since 1893, function much like pooled mutual funds but differ in that they have a fixed number of shares trading on public exchanges after their IPO. 

Unlike mutual funds, which create or redeem shares daily to match investor flows, CEFs trade like stocks, meaning their prices can swing above or below the fund’s actual net asset value (NAV). This market pricing dynamic allows investors to potentially buy a dollar’s worth of assets for 90 cents, creating attractive opportunities to purchase CEFs at discounts. 

In addition, CEFs can use leverage to amplify returns, which often translates to higher distribution yields than traditional funds. However, investors should generally avoid paying a premium above NAV, just as they wouldn’t pay $1.10 for a dollar. 

Finsum: CEFs trading at reasonable discounts with strong yields may offer a compelling addition to income-seeking portfolios, combining discounted asset value with robust payouts.

Semiliquid investment vehicles—including interval funds, tender-offer funds, nontraded REITs, and nontraded BDCs—are becoming a significant bridge between public and private markets, offering investors periodic liquidity and access to traditionally illiquid asset classes. 

These vehicles have grown rapidly, with U.S.-based semiliquid assets reaching $344 billion by the end of 2024, driven primarily by demand for private credit strategies that generate consistent income without necessitating frequent redemptions. However, their appeal comes with steep costs: average expense ratios exceed 3%, far above the fees of mutual funds and ETFs, and many carry layered management, incentive, and acquired fund fees that create high performance hurdles for investors. 

Leverage plays a substantial role in returns, particularly in credit-focused funds, where income appears more attributable to borrowed capital than superior asset selection. Semiliquid private equity vehicles, on the other hand, have largely underperformed, often failing to match the S&P 500. 

Finsum: These structures expand access to private markets, but investors must weigh the benefits of income and diversification against liquidity constraints.