Asian high-net-worth investors are seeking more semi-liquid open-ended investment vehicles for alternatives to overcome the challenges of investing in this asset class, particularly illiquidity and huge ticket sizes.

Although such vehicles for alternatives are relatively new, they are now growing in popularity when compared to traditional alternative investment structures, such as closed-end funds or illiquid investments that require long-term commitments of several years, with little to no opportunity for redemption until the fund’s maturity or liquidation.

Semi-liquid open-ended vehicles, on the other hand, offer the liquidity of traditional open-ended funds and the higher returns associated with less liquid assets by providing flexible mechanisms that allow redemption at pre-defined intervals, such as quarterly or semi-annually. These vehicles are designed to provide some level of liquidity while still investing in less liquid assets like private equity, real estate, and infrastructure.

In fact, such funds were the most preferred option for accessing private market opportunities by 56% of respondents to the Global Investor Insights Survey ( GIIS ) conducted by Schroders in December 2024. The GIIS was based on responses from 1,755 global wealth managers and financial advisers globally, including 525 from Asia-Pacific ( APAC ), representing US$12.1 trillion in assets.

Increasing demand

A number of fund managers in the region, such as BlackRock, Macquarie, Brookfield, and J.P. Morgan, have begun offering semi-liquid open-ended investment vehicles for alternative assets in response to increasing investor demand.

Gary Leung, APAC head of private wealth alternatives at J.P. Morgan Asset Management, says the evolution of semi-liquid open-ended funds for alternatives is a big step from the traditional closed-end fund structures that have been used for investing in alternatives since the 1980s.

“That structure did not experience any innovation for the next 25 years, which has also made investing in alternatives rather restricted to the big pension funds and endowments,” Leung says in an interview with The Asset.  “But the rise of semi-liquid open-ended vehicles opened up the asset class to private wealth, high-net-worth individuals because these vehicles can offer relatively small ticket sizes and the ability to meet their higher liquidity needs.”

Although semi-liquid open-end vehicles for alternatives started gaining investor interest in the 2010s, they gained traction in the 2020s driven by demand from investors who were struggling with long lock-up periods that come with long-term, illiquid investments in their bid to access alternative asset classes.

Also, the relatively onerous traditional investment process that came with the traditional closed-end funds was effectively insulating the alternative asset classes from a huge potential pool of investors who now make up the private wealth sector.

Cash management mechanism

In addition to liquidity and flexibility, semi-liquid open-ended vehicles also offer a cash management component. “These are fund vehicles with an additional layer of portfolio management around it,” Leung explains. “So, in the past, when you look into a private equity fund, there were about 10 to 20 different companies within that fund. However, because it's also very clumsy, because of the capital core distribution, etc., that's happening within or outside of this vehicle. These nuances, and also the consciousness of those nuances, usually inhibit private wealth investors from investing in these traditional funds. But today, with a semi-liquid vehicle, they would actually take that cash management capital core distribution type of mechanism into the vehicle itself.”

This means the fund manager does not need to rely on external cash reserves or make adjustments to the underlying investments to manage liquidity for redemptions. Instead, the fund can operate with built-in features, enabling regular distributions, like payouts or redemptions, without disrupting the fund's core strategy.

While investing in alternatives is becoming more popular, it’s still a fairly nascent market. “Today, in the high-net-worth space ( investors with US$1 million plus of financial asset ownership ), the total size of the market in APAC is about US$26 trillion. That's a massive market but out of that, only 4% is invested into alternatives,” Leung says.