Offering daily liquidity while pursuing a multi-year investment strategy creates a dangerous duration mismatch. When investors inevitably demand their cash during a downturn, the long-term thesis is shattered, forcing fire sales and destroying value. A fund's liquidity terms must align with its investment horizon.

The term "semi-liquid" for private asset funds is misleading. Retail investor behavior is procyclical; during a downturn, redemption requests will surge simultaneously. This reveals the assets' true illiquidity, turning a perceived feature into a systemic risk.

The primary vehicles for retail access, semi-liquid funds, offer limited quarterly liquidity (capped at ~5%). However, managers can impose "gates" to halt withdrawals entirely, exposing investors to a fundamental duration mismatch between their needs and the fund's illiquid assets.

Funds offer investors quarterly liquidity while holding illiquid, 5-7 year corporate loans. This duration mismatch creates the same mechanics as a bank run, without FDIC insurance. When redemption requests surge, funds are forced to sell long-term assets at fire-sale prices, triggering a potential collapse.

Certain private asset funds, like non-traded closed-end funds and interval funds, are structured like 'roach motels' where money can easily go in but is extremely difficult to get out. This design serves the manager by providing permanent capital but creates significant liquidity risk for the investor.

Many investors in 'evergreen' or 'semi-liquid' funds like BDCs are surprised when they can't withdraw their money. These funds have redemption gates (e.g., only 5% of AUM per quarter) written into their documents, a detail often missed by investors rushing into the asset class without proper diligence.

Many investors mistakenly believed private credit funds offered semi-liquidity, not understanding the underlying assets are fundamentally illiquid. The realization that liquidity is a discretionary feature, not a guarantee, is causing a healthy but painful exodus from the asset class as mismatched expectations are corrected.

Unlike liquid public market ETFs, new retail VC products have limitations on cashing out. AngelList's USVC targets a 5% quarterly redemption, but if they cannot meet it, investors are stuck, mirroring the illiquid nature of traditional venture capital.

The primary risk in private markets isn't necessarily financial loss, but rather informational disadvantage ('opacity') and the inability to pivot quickly ('illiquidity'). In contrast, public markets' main risk is short-term price volatility that can impact performance metrics. This highlights that each market type requires a fundamentally different risk management approach.