Investors Rotate From Private Credit to Equity Funds, Morningstar Reports
Semiliquid fund assets approached $600 billion at the end of March, more than double where they stood at the end of 2022, according to Morningstar’s newly published State of Semiliquid Funds 2026 report. But the growth engine has changed: private credit, which drove most of the expansion since 2022, slowed sharply in the first quarter, while private equity and venture capital funds picked up the demand credit left behind.
Direct lending net assets dipped by about $1 billion in the first quarter, the category’s first real pullback, as investors pulled roughly $1.8 billion from the 10 largest direct lending funds, according to Morningstar. Blackstone and Oaktree fully honored redemption requests during the quarter despite the surge in withdrawal demand, but Blackstone capped its private credit fund’s withdrawals at 5% in the second quarter – its first cap since the fund’s launch. Morningstar attributed the reversal in part to investor concern over the private credit sector’s exposure to software companies amid broader worries about artificial intelligence’s effect on that industry.
Money moving out of credit went toward equity strategies. Private equity semiliquid funds took in roughly $14.5 billion over the 12 months ended in March, up from $6 billion two years earlier, while venture capital funds, which had drawn almost no inflows as of March 2024, pulled in about $8 billion over the same period. Morningstar tied the venture capital surge to investor appetite for pre-IPO exposure to companies including SpaceX, Anthropic, and OpenAI, each of which the report said is expected to pursue a public offering this year at a valuation exceeding $1 trillion.
The rotation comes as Morningstar continues to expand its due-diligence coverage of the space. AltsWire has tracked that effort since Morningstar introduced its Medalist Rating framework for semiliquid funds in May 2025. An initial batch of six rated funds in September produced only two ratings of Bronze or better, both from Pimco, and a second round in November added six more Neutral ratings and one additional Negative without a single Bronze, Silver or Gold. In the year since, Morningstar’s rated universe has grown to 19 funds, but the pass rate has barely moved: just four share classes now carry a Bronze or Silver rating, and none has reached Gold.
“Innovation often outpaces education” in this market, Morningstar said in the report, noting that only 16% of financial advisers describe themselves as very familiar with semiliquid fund structures.
The rotation described in the report is specific to registered semiliquid vehicles – interval funds, tender-offer funds, nontraded business development companies, and nontraded real estate investment trusts – and doesn’t extend to Delaware statutory trusts, a separate category of private placement real estate offerings that Morningstar’s report doesn’t track. DST fundraising has shown no comparable slowdown; equity raises for DST offerings rose 34% year over year in the first quarter, and Mountain Dell Consulting has projected the sector will reach $10 billion to $11 billion in sales for 2026.
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