If you have spent any time researching private market investments, you have encountered a growing number of structures that promise something between the full illiquidity of a traditional private fund and the daily liquidity of a mutual fund. Interval funds. Non-traded BDCs. Tender offer funds. '40 Act vehicles.
The marketing around these structures often emphasizes access and liquidity. The fine print is more nuanced. Understanding what each structure actually offers — and what it does not — is one of the more practically useful things an alternative investor can know before committing capital.
The baseline — traditional private funds
Before getting into the semi-liquid structures, it helps to be clear about what a traditional private fund looks like, because the newer structures are best understood in contrast to it.
A traditional private fund — a real estate syndication, a private equity fund, a private credit drawdown fund — is organized as a limited partnership or LLC. It is not registered with the SEC. It is available only to accredited investors, and in many cases only to qualified purchasers. Capital is committed upfront and called over time. There is no redemption mechanism — if you want to exit before the fund winds down, you need to find a buyer for your LP interest on the secondary market, which is difficult, time-consuming, and typically happens at a discount.
In exchange for accepting full illiquidity, investors in traditional private funds get the purest exposure to the underlying strategy, the most favorable fee structures among private market options, and K-1 tax treatment that passes through depreciation and other tax attributes directly.
This is the structure most alternative investors encounter first and most often.
Interval funds — scheduled liquidity with limits
An interval fund is a registered closed-end fund governed by the Investment Company Act of 1940 — the '40 Act. It invests in illiquid assets but offers investors periodic opportunities to redeem shares, typically quarterly.
The key word is periodic. Interval funds are required by regulation to offer redemptions at set intervals, but those redemptions are capped — typically at 5% of the fund's outstanding shares per quarter. If redemption requests exceed the cap, investors receive a pro-rata portion of what they requested and must wait until the next interval for the remainder.
This matters more than it sounds. In periods of market stress — when many investors want out simultaneously — the 5% cap means you may not be able to exit the full amount you request, or at the time you want to exit. Several interval funds in the private credit space faced elevated redemption requests in 2024 and 2025, and investors who expected quarterly liquidity discovered that the process could take multiple quarters to fully exit a position.
What interval funds offer in exchange: broader investor access (some do not require accredited investor status), 1099 tax treatment instead of K-1s, lower investment minimums than traditional private funds, and the regulatory protections that come with '40 Act registration — audited financials, leverage limits, and ongoing SEC disclosure requirements.
The underlying assets in interval funds are often the same types of investments as traditional private funds — private credit, real estate debt, infrastructure. The fund structure is different; the investment risk profile is broadly similar.
Business Development Companies — the BDC landscape
A BDC is a specific type of investment company also governed by the '40 Act, created by Congress to channel capital to small and mid-sized businesses that cannot access public debt markets. BDCs primarily make loans and equity investments in private companies — middle market businesses with consistent revenue but limited access to traditional financing.
The BDC category is broader than many investors realize, and the differences within it are significant.
Publicly traded BDCs list their shares on stock exchanges and trade like stocks — with daily liquidity, continuous market pricing, and the full transparency of public company disclosure. Their share prices can trade at a premium or discount to NAV based on market sentiment, which means daily liquidity comes with daily price volatility. For investors who want private credit exposure with the ability to buy and sell freely, publicly traded BDCs are the most accessible option.
Non-traded BDCs are not listed on exchanges. They offer periodic redemption programs — typically quarterly — but those redemptions are discretionary rather than mandatory. The fund's board can reduce or suspend redemptions entirely if conditions warrant. This is a meaningful distinction from interval funds, where the periodic repurchase offer is legally required. Non-traded BDC investors have less certainty about liquidity than interval fund investors — the redemption feature is a best-efforts commitment, not an obligation.
Non-traded BDCs also tend to carry higher fee loads than interval funds or publicly traded BDCs — management fees, incentive fees based on income and capital gains, and in some structures, upfront sales loads. The income yields can be attractive, but the net return to investors after fees deserves careful scrutiny.
Tender offer funds — a related structure
Tender offer funds are another '40 Act registered structure that offers periodic liquidity through a different mechanism. Rather than the mandatory repurchase schedule of an interval fund, tender offer funds make discretionary offers to repurchase shares at set intervals — the board decides each period how much to offer and at what price.
The practical difference from a non-traded BDC is modest. Both structures offer discretionary, limited periodic liquidity. The regulatory framework differs slightly, but from an investor experience standpoint they behave similarly — you can request redemptions during offer periods, subject to caps and board discretion.
What the '40 Act actually means for investors
When a fund is described as a '40 Act vehicle, it means the fund is registered under the Investment Company Act of 1940 and subject to its requirements. For investors, the practical implications are:
Leverage limits. Interval funds are capped at roughly 0.5:1 debt-to-equity. This is considerably more conservative than traditional private funds or non-traded BDCs, which can use significantly more leverage. Less leverage generally means lower risk — and potentially lower returns.
Disclosure and reporting. '40 Act funds file regular reports with the SEC, have audited financials, and are subject to ongoing regulatory oversight. This provides more transparency than traditional private funds, where disclosure is governed by the fund agreement rather than regulation.
Valuation. '40 Act funds are required to value their portfolios at fair value, with independent oversight. This does not eliminate the subjectivity inherent in valuing illiquid assets, but it adds a layer of process and accountability.
Tax treatment. Most '40 Act vehicles issue 1099s rather than K-1s — a meaningful practical difference for investors who find partnership tax reporting complex. The tradeoff is that the tax efficiency of partnership structures — particularly the pass-through of depreciation from real estate — is generally not available through '40 Act vehicles.
How to think about these structures
The proliferation of semi-liquid structures reflects genuine demand from investors who want private market exposure without full illiquidity. That demand is legitimate. The structures that have emerged to meet it are real, regulated, and in many cases well-managed.
The risk is in misunderstanding what the liquidity features actually promise.
Interval fund liquidity is real but limited and potentially slow — 5% per quarter, with pro-rata allocation if demand exceeds the cap. Non-traded BDC liquidity is discretionary — the board can gate it. Publicly traded BDC liquidity is daily but comes with market price volatility. Traditional private fund liquidity is essentially nonexistent except through secondary markets.
None of these is the right structure for every investor or every objective. The questions worth asking before committing to any of them: What is the underlying investment strategy, and does the liquidity structure match the actual liquidity of those assets? What are the fees, and how do they compare to alternatives with similar exposures? What happens to my redemption request if many investors want out at the same time? And is the liquidity feature I am paying for — in the form of higher fees or lower returns — actually something I need?
For investors who genuinely cannot commit to full illiquidity, the semi-liquid structures fill a real gap. For investors who can afford to be illiquid and are primarily attracted to these structures because the word "liquidity" appears in the marketing, the tradeoffs deserve a closer look.