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 qualifying investors. 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.
Interval funds typically issue 1099s rather than K-1s, which simplifies tax reporting significantly compared to traditional private funds. They are also generally available to non-accredited investors, which expands access but reflects a different regulatory framework than traditional private markets.
The fee structure for interval funds tends to be higher than publicly traded vehicles but lower than institutional private funds. Management fees typically range from 1-1.5%, sometimes with performance fees above a hurdle rate.
Business development companies — the listed option
A business development company, or BDC, is a publicly registered closed-end fund that invests in the debt and equity of private middle-market companies. BDCs are a specific SEC-regulated structure that was created in 1980 to channel capital to smaller businesses.
BDCs come in two main flavors: publicly traded and non-traded.
Publicly traded BDCs trade on stock exchanges — NYSE, NASDAQ — and can be bought and sold like stocks. They provide daily liquidity, real-time pricing, and 1099 tax reporting. The tradeoff is that because they trade on exchanges, their prices can move significantly based on market sentiment, interest rate expectations, and credit market conditions — creating volatility that does not directly reflect the performance of the underlying loans. Publicly traded BDCs often trade at significant discounts or premiums to NAV, which adds a layer of price risk that does not exist in traditional private credit funds.
Non-traded BDCs are registered with the SEC but do not trade on exchanges. They typically offer periodic tender offers — quarterly or annually — that allow investors to sell shares back to the fund at NAV, subject to limits similar to interval funds. Non-traded BDCs experienced significant stress in 2022-2025, with some limiting redemptions when investor demand exceeded available liquidity.
Both types of BDCs are required to distribute at least 90% of taxable income as dividends, which is why they tend to have higher stated yields than other investment vehicles. They issue 1099s rather than K-1s.
Non-traded REITs — real estate with periodic liquidity
Non-traded real estate investment trusts occupy a similar space as non-traded BDCs but invest in real estate rather than corporate debt. They are registered with the SEC, do not trade on exchanges, and offer periodic redemption windows — typically quarterly — subject to limits.
Non-traded REITs had a problematic history before the current generation of structures. Earlier vehicles were known for high fees, poor transparency, and long lock-up periods without the redemption features that modern non-traded REITs offer. The current generation has improved on fees and liquidity access, though the redemption limits remain relevant in stress scenarios.
Like BDCs, non-traded REITs issue 1099s rather than K-1s, which means they do not pass through the depreciation benefits that make traditional real estate syndications attractive to investors in high tax brackets.
The 40 Act fund landscape broadly
The term 40 Act fund refers to any investment vehicle registered under the Investment Company Act of 1940. This includes mutual funds, exchange-traded funds, closed-end funds, and the interval funds and BDCs described above.
What unites them is SEC registration and the investor protections that come with it: regular financial reporting, limits on leverage, restrictions on transactions with affiliated parties, and liquidity requirements that must be disclosed clearly. These protections make 40 Act funds more accessible and more regulated than traditional private funds — but the underlying investments can still be highly illiquid.
The growth of alternative 40 Act funds reflects an effort to bring private market exposure to a broader investor base. The challenge is that the liquidity features built into the regulated structures cannot fully solve the underlying illiquidity of the assets those funds own. When all investors want out at the same time, the fund's 5% quarterly redemption cap and the underlying portfolio of long-duration loans are in structural conflict.
How to compare these structures
When evaluating whether a semi-liquid alternative structure fits your portfolio, the questions worth asking are:
What does the liquidity feature actually guarantee? A quarterly redemption window with a 5% cap is not the same as quarterly liquidity. Understand what happens if redemption demand exceeds the cap, and how long a full exit could realistically take in an adverse scenario.
What is the fee structure, and does it make sense relative to a traditional private fund? Higher fees without commensurately higher returns reduce the benefit of accessing the strategy through a more liquid vehicle.
What is the tax treatment? If the primary appeal of the underlying asset class is tax efficiency — as with real estate depreciation — a 1099-issuing vehicle eliminates that benefit. A non-traded REIT does not provide the K-1 tax advantages of a real estate syndication.
Is the liquidity I want actually available when I need it? The answer from 2024 and 2025 is: sometimes not. Understand the conditions under which redemptions can be limited or suspended, and whether those conditions are realistic scenarios for the specific fund you are evaluating.
Would a traditional private fund serve my actual needs? For investors who can genuinely tolerate full illiquidity for a defined period, a traditional private fund typically offers better fee structures, better tax treatment, and purer exposure to the underlying strategy than its semi-liquid alternatives.
The spectrum of private market investment structures exists because different investors have different needs. Understanding where each structure sits on the liquidity-access-fees-tax-treatment tradeoff is the starting point for choosing the right one.