Accessing The European Semi-Liquid Fund Market Opportunity

2025 has brought further momentum in the use of ‘semi-liquid’ funds to meet appetite for private markets exposure with a measure of liquidity – with the still-relatively new LTAF and ELTIF 2.0 fund frameworks providing opportunities for asset managers to lower barriers to access for European investors.  

By Rachel Thornton, Senior Product Manager, Complex Fund Solutions at Northern Trust. 

 

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Semi-liquid funds are structures providing a hybrid asset mix of public and private asset investments, offering redemption facilities through open-ended fund or limited liquidity vehicles. Driven by appetite for gaining access to private markets investing with a measure of liquidity – unlike more established closed-ended vehicles – launches of these funds have continued at pace in 2025.

In our November 2024 briefing paper: European Semi-Liquid Funds: Supporting the Market Opportunity we assessed factors that are converging in Europe to drive interest in semi-liquid funds, along with the challenges of designing and managing them. We outlined some of the foremost structuring, servicing and distribution challenges associated with these vehicles likely to be most notable for market entrants.

We noted growing interest from managers in using the still-relatively new UK Long Term Asset Fund (LTAF) and European Long Term Investment Fund 2.0 (ELTIF) frameworks as governments’ regulated vehicles of choice, purpose-built to enable access to more illiquid asset classes. Both structures support demand for private markets access via a regulated structure and our paper shared insights into the operating model solutions emerging from a year of working with asset manager clients to launch several of the LTAFs and ELTIFs of 2024.

As 2025 reaches its halfway point, here are four significant trends we observe as investment and distribution strategies evolve and interest from asset managers in launching semi-liquid fund products continues to grow.

Distribution strategies are fast-evolving

The drivers underpinning interest in semi-liquid funds have only become more relevant in 2025. Semi-liquid funds have in recent years been seen as enabling capital formation and a means of channelling long-term investment in sustainable infrastructure to help governments achieve their public policy objectives.

In the UK, to support this objective, the Government’s 2023 Mansion House Reforms set targets for large defined contribution (DC) pension providers to commit to allocating 5% of assets in their default funds to unlisted equities by 2030. This allocation commitment continues to be a key factor driving the volume of UK fund launches, with the new Labour government also having taken power recently to set binding asset allocation investment targets for pensions – likely to private markets.[1]Spurred at least in part by these drivers, LTAF launches have taken off at a quicker pace than their ELTIF 2.0 counterparts.

Most of the existing 23 LTAF sub-funds (at time of writing)[2] have been launched by larger asset managers, driven by growing interest from institutional investors – and defined contribution (DC) investors primarily. In a relatively short space of time the LTAF has grown in prominence to become seen as one of the key vehicles through which managers will come to offer private markets access to these UK investors. However, we are also seeing interest emerging in launching LTAFs targeted at UK high-net-worth (HNW) individuals.

Consequently, we view the LTAF as a key fund vehicle that will support distribution of private markets to institutional and HNW investors as part of their diversification strategies. However, this is unlikely to represent the full ‘democratisation’ of private markets that is sometimes predicted; our expectation is rather that (initially at least) these products will target the sophisticated HNW investor as opposed to the UK’s retail market (as characterised by the ‘do-it-yourself’ investor).

In part this is because use of liquidity management tools such as gating, notice and lockup periods will pose challenges to securing investor flow from traditional and/or mutual fund distribution platforms. Presently, most individual retail investors (considered to be less sophisticated investors), generally lack the time, expertise, or financial means to manage their exposure to private assets in line with market cycle developments. 

ELTIFs can also be launched as professional and retail (HNW-focused) fund products, for which we are seeing a distribution bias emerging towards European private bank channels. This reflects the importance of having strong distribution capabilities into the channels for private wealth and sophisticated investors – an important differentiator in this new market – especially given the intrinsic complexity of many of these strategies.

Cross border distribution is the key to unlocking ELTIF opportunity

The ELTIF 2.0 (hereafter referred to as ELTIF) regulations came into effect in January 2024 with its regulatory technical standards coming into force on 26 October 2024. While fund launches since have not yet reached comparable pace to those of its LTAF counterpart, the ELTIF is creating opportunities for managers to provide private markets access for new types of professional and retail investors.

This second version of the ELTIF framework (the first ELTIFs failed to achieve expected European scale) relaxed requirements reducing the minimum exposure to illiquid assets (to 55% from 70%) and allows the possibility of "evergreen" ELTIFs, which are effectively open-ended and built to accommodate ongoing (though limited) investor inflows and outflows.

At Northern Trust, we view the ELTIF label as a significant innovation in progressing towards the democratisation of private assets within the European Union (EU)’s Alternative Investment Fund (AIF) framework. The ELTIF label was designed to be to AIFs what the UCITS label was to listed funds: for ELTIFs to act as a facilitator and accelerator for the pan-European distribution of ‘alternative’ funds across the bloc regardless of where in the EU they are domiciled.

It is important to note however that, in our experience, the ELTIF label alone is unlikely to be sufficient for successful distribution of the corresponding AIF. Distribution is likely to be the biggest challenge and opportunity for asset managers when establishing their funds – and ensuring effective oversight and improving distributor education is crucial.

Product launches will require distribution partners who are experienced in supporting semi-liquid funds, with a strong understanding of targeted client profiles and thorough knowledge of the operational, regulatory and tax regimes of the countries involved. Establishing agreements with distribution platforms may also be required.

Additionally, while the updated ELTIF legislation was aimed at further integrating European capital markets by allowing the passporting of products, in practice much of the market today retains a domestic home country-bias. According to the European Securities and Markets Authority (ESMA), Europe's financial-market watchdog, most ELTIFs are still marketed in just one European country, and around a third of the total is authorized for distribution in more than two countries.

At Northern Trust we are nonetheless seeing an uptick in the pace of ELTIF opportunities arising. The ELTIF’s pan-European passporting label and cross-border distribution capability is emerging as a key differentiator for managers as to why many choose an ELTIF over another structure such as a UCI part II Luxembourg fund which is primarily targeted at professional and sophisticated investors, and therefore with more restrictive marketing parameters.

Fund design (still) takes time

We noted previously that, in our experience, no two semi-liquid funds are the same and that consequently their operating models and servicing requirements can vary significantly. As they plan their funds, managers continue to require access to market intelligence, expertise, and collaboration, from the stages of fund design through to achieving regulatory approval and launch.

Despite growing familiarity with ELTIFs and LTAFs as greater numbers come to market, fund design continues to take a significant amount of time for new entrants. Much upfront analysis is required to support the regulatory approval process: this includes defining the liquidity management tools and pricing policies that will be used for the fund, as well as providing detailed extensive operating model details outlining how the fund will be managed and investors will be serviced.

And that is only after the product has passed through internal board approval. Before this, some managers with both traditional and private market businesses may face internal friction and the need for internal education as they create these unfamiliar hybrid fund types.

Furthermore, as these are regulated vehicles, applying the relevant fund and domicile regulations may also pose challenges for some managers – especially if they are new to a particular market.

Take, for example, the LTAF, which operates as a UK regulated fund and is therefore subject to the Financial Conduct Authority (FCA)’s COLL (Collective Investment Schemes sourcebook) rules that all assets much be registered in the name of the Depository. This imposes a different approach to asset ownership to those required under the European ELTIF framework. Such differences will shape managers’ choices around their use of fund-of-funds-type structures or funds with access vehicles (e.g. special purpose vehicles).

Semi-liquid funds are at the intersection of opportunity and transformation in private markets

The entry into this once-niche market space of both traditional and established private capital managers continues to be one of Europe’s foremost funds industry stories.

At Northern Trust we are seeing a mix of hybrid European semi-liquid strategies emerging, with a consistent focus on private credit, across the LTAF and ELTIF offerings that we are servicing today. Despite the fund design and other challenges outlined above, their use at increasing scale in Europe represents an intersection of opportunity and transformation – providing new options for how investors will be able to access an increasingly broad and complex range of private market investments.

Demand for access to private markets remains high: in consultancy McKinsey’s latest Global Private Markets Report, a survey of limited partners investing in private equity, investors said that they will allocate more capital to it over 2025/6 despite 2024 being a challenging year for the asset class .[3] Another recent survey by UK wealth sector consultancy bfinance reported that private markets remain central to investment strategies, with 53% of surveyed investors planning to increase exposure over the next 18 months, and 30% seeking to retain their current exposure.[4]

Demand for private markets investing is of course not new: institutional and HNW investors have for years leveraged private investments for portfolio diversification. Yet while the ELTIF 2.0 and LTAF frameworks remain relatively new, are yet to be tested at scale or in global-scale crisis situations, their frameworks now look set to lower barriers that have historically prevented a broader range of investors from accessing the asset class. 

Against this backdrop, European investors’ use of semi-liquid funds will likely form an increasing part of their asset diversification strategies to gain exposure to private assets via a single, multi private asset fund across investments, including private equity, private credit, infrastructure, and real estate.

The potential for higher risk-adjusted returns and the flexibility to navigate an environment characterised by environmental, demographic, technological and industrial transitions, makes private markets investing an option that will be increasingly sought by managers and investors. Across Europe, semi-liquid funds look set to play a further significant role in enabling this access at increasing scale.

 

[1] HM Government Press release: Pension plan to double £25 billion+ megafunds, boost investment and improve returns for savers.

[2]As of June 18, 2025. Source: FCA website.

[3] McKinsey & Company, Global Private Markets Report 2025, 20 May 2025

[4] Financial Newswire: Investor optimism returns, with private markets exposure set to surge: survey, 25 November 2024