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Semi-liquid funds are transforming global asset management. By combining private market returns with periodic liquidity, they offer investors an unprecedented balance of yield and flexibility. Already a fast-growing segment in the US, they are now gaining momentum in Europe, where Luxembourg is positioning itself as the reference hub. Just as UCITS once defined liquid investing, semi-liquids could become Europe’s next flagship with Luxembourg leading the way.
Breaking the binary choice
For decades, investors faced a stark dilemma: daily liquidity through UCITS or decade-long lock-ups in private funds. Semi-liquid funds are dismantling this binary model. By offering periodic redemptions – often quarterly or semi-annual, though any frequency is technically possible – while investing in illiquid assets such as private debt, real estate or infrastructure, they respond to growing demand for flexibility in alternatives.
The trend is global. In the United States, interval and tender-offer funds grew from USD 34.3 billion in 2014 to USD 188 billion by the first quarter of 2025, according to FUSE Research Network. Their popularity lies in their ability to match redemption schedules with predictable portfolio cash flows, particularly in private credit.
In Europe, the breakthrough came with ELTIF 2.0, which entered into force in January 2024. The new framework expanded eligible assets, relaxed diversification rules and introduced redemption mechanisms under strict liquidity controls.
Why demand is accelerating
Several factors explain why semi-liquid funds are now scaling. The yield premium remains attractive: private credit strategies typically generate 8–12% annually, compared with 3-6% for investment-grade bonds. Listed equities, meanwhile, continue to face volatility, while private loans provide diversification and contractual cash flows.
Wealth allocations are also shifting, specifically for high-net-worth individuals and family offices. Semi-liquid structures give them access without the constraints of a ten-year lock-up. Banks and private distributors, under pressure to deliver new offerings, are pushing this shift further.
On the supply side, global sponsors are rolling out scalable semi-liquid platforms tailored for wealth channels, meeting private banks’ growing demand for products that go beyond deposits or plain-vanilla funds.
Luxembourg steps into the spotlight
Luxembourg has been swift to seize the opportunity. According to the CSSF, Luxembourg-domiciled funds managed EUR 5.7 trillion in June 2025, representing more than one-third of Europe’s total. ELTIF registrations confirm its dominance: of 211 ELTIFs listed in the ESMA register by July 2025, 124 were domiciled in Luxembourg – nearly 60%.
This leadership is built on credibility. “Luxembourg created a model that gave international funds and their investors the confidence to relocate from other jurisdictions,” notes Emily Brown, Head of the Investment Funds Practice at White & Case.
Beyond ELTIFs, managers have multiple structuring routes: UCIs Part II, RAIFs and SIFs all offer semi-liquid possibilities depending on investor type and strategy.
Why private debt is the perfect fit
Private debt illustrates why semi-liquid funds are more than a passing trend. Private credit strategies typically deliver 8-10% returns, occasionally reaching 12% in favorable market conditions. Floating-rate features provide natural inflation protection, while credit performance shows lower correlation with public equities.
The appeal extends across investor categories. Insurers and pension funds value diversification. Private banking clients want higher yields without a decade-long commitment.
Luxembourg’s competitive edge
Luxembourg’s strength rests on several pillars. Its legal toolbox covers retail and professional structures alike, with ELTIFs, UCIs Part II, RAIFs and SIFs all available to sponsors. Its global passport enables distribution in more than 80 countries (ALFI , 2025). Its regulatory credibility is anchored by CSSF priorities and ALFI’s detailed liquidity guidelines. Finally, Luxembourg benefits from a deep ecosystem of AIFMs , administrators, depositaries, law firms and auditors with long-standing experience in complex hybrid structures.
This combination of regulatory credibility and practical expertise reinforces Luxembourg’s position as the natural hub for semi-liquid funds.
Challenges on the horizon
Opportunities also bring responsibilities — and some obstacles remain before semi-liquid funds become mainstream. Liquidity rights must be carefully aligned with loan repayment schedules, and Net Assets Value (NAVs) must remain consistent, auditable and defensible.
More broadly, adoption in Europe has been slower than many predicted. Structural barriers play a role: Europe remains a continent of savers, where investors often prefer cash and deposits to illiquid strategies. Distribution is another bottleneck. Private banks and retail platforms are still cautious, often limiting semi-liquid offerings to high-net-worth clients rather than broad “retail plus” audiences. Education is a further challenge: many investors still assume that “semi-liquid” is equivalent to UCITS-style daily liquidity, leading to mismatched expectations.
Competition adds pressure. Ireland has attracted relatively few ELTIFs, but remains an alternative EU domicile. The UK, outside the EU, has developed its own Long-Term Asset Fund (LTAF) framework, although it lacks the EU distribution passport. Operational complexity and cost also weigh on managers, as semi-liquid structures require more resources for liquidity stress-testing, valuation and disclosure.
Conclusion: A defining moment for Luxembourg
Semi-liquid funds combine the return profile of alternatives with the flexibility of periodic liquidity — a genuine middle ground between UCITS and closed-end funds. Yet, their retailization journey in Europe is only beginning. Investor appetite is strong in principle, but distribution hurdles, conservative savings habits and the need for investor education mean that growth will be more gradual than initially anticipated.
This makes Luxembourg’s role even more critical. With its proven legal framework, regulatory credibility and unmatched distribution reach, the Grand Duchy is uniquely positioned to anchor Europe’s semi-liquid growth story. If UCITS once defined Europe’s liquid brand, semi-liquid funds now have the opportunity to establish Europe’s leading alternative investment brand, with Luxembourg taking the lead.
Summary
In recent years, the investment landscape has evolved, challenging the traditional dichotomy between daily liquidity offered by UCITS and the long lock-up periods of private funds. Semi-liquid funds are emerging as a compelling solution, providing investors with the flexibility of periodic redemptions while accessing illiquid assets, thus reshaping the future of alternative investments.