What “Liquidity” Really Means in Private Markets — And Why the Industry Needs to Do Better

At the end of March, I was a panelist at the With Intelligence Wealth Partnership Spring Retreat in Washington, DC — an invitation-only gathering of some of the country’s sharpest allocators, family offices, RIA professionals, and asset managers. The conversations were refreshingly direct. No sales pitches. Just honest talk about where private markets are heading, what’s working, and what isn’t.

The issue that kept surfacing was this: private markets are growing at a pace the industry’s client education simply hasn’t kept up with. Everyone agrees these asset classes belong in serious portfolios. Far fewer agree on whether clients actually understand what they’re signing up for, especially when it comes to getting their money back.

That’s the gap I want to close here.

Why Private Markets Matter

More than 99% of U.S. companies are private. The entire universe of public stocks — everything traded on the NYSE or NASDAQ — represents a small slice of American business activity. Narrow it to companies with more than $100 million in annual revenue, and estimates suggest roughly 85% to 87% are still private. The most compelling growth, the most interesting deals, the deepest opportunities — most of it is not happening on any exchange.

The same story plays out in lending. Private credit — direct loans made outside the traditional banking system — has grown from roughly $310 billion in 2010 to somewhere between $1.7 trillion and $3 trillion today, depending on how you measure it, and now represents approximately one-third of the entire leveraged credit market. Forecasts for the end of the decade range from $2.6 trillion to $5 trillion globally. It is no longer an alternative to the credit markets. It is a major part of them.

Real estate follows the same pattern. The most compelling commercial, industrial, multifamily, and infrastructure opportunities across the country are not available through a publicly traded REIT. Public REITs trade alongside the stock market and carry that volatility with them. The deeper, more differentiated real estate investments live in private markets.

If you want meaningful exposure to the full breadth of the American economy, you may have to go private. 

But going private means engaging with investment structures that operate very differently from anything most investors have experienced. And that’s an area where client education can sometimes fall short across the industry.

The Education Problem

Too many advisors are placing clients into these funds without clearly walking through the exit rules. Clients sign up attracted by the return potential, then get surprised when they can’t access their money as easily as they could from a stock or a regular mutual fund.

I heard this again recently in Austin, Texas, where I sat down with representatives from a major private credit fund invested heavily in software companies. They had just watched redemption requests spike — not because the fund was performing poorly, but because headlines about artificial intelligence threatening the software sector had spooked investors. The fund’s representatives said it plainly: in their view, many of the advisors who placed clients in these vehicles had not explained clearly enough what it actually means to get your money out. Investors were surprised. They shouldn’t have been. That surprise is a failure of education, not a failure of the fund.

So let’s fix it. Four structures, explained honestly.

The Four Structures — And What Liquidity Really Looks Like

One of the most important things to understand first: the structure is the box, not the investment. A capital call fund, an evergreen fund, an interval fund, and a 1940 Act mutual fund are delivery mechanisms. Many private-market asset classes — private equity, private credit, real estate, infrastructure — can be delivered through multiple structures. But not every asset class fits every structure equally well; the more liquid the structure, the more limited its access to truly illiquid underlying investments. The structure doesn’t determine what you own. It determines when and how you can get your money back.

The 1940 Act Mutual Fund — Daily Redemptions, Strong Legal Protections

This is the most familiar structure. Open-end mutual funds generally offer daily redemptions and are required by law to pay proceeds within seven days.

The trade-off is on the investment side. To maintain that level of liquidity, these funds must keep the portfolio predominantly liquid. That means you’re primarily accessing alternative strategies (things like managed futures, long/short equity, or options-based approaches) rather than true private market assets like direct loans, private real estate, or operating company ownership. These are legitimate strategies with real diversification value, but they are a fundamentally different proposition.

In a stressed market, liquidity generally holds up better here than in some other structures on this list. Exchange closures or pricing disruptions can introduce complications in rare circumstances, but investors are generally shielded from manager-imposed gates and suspensions. What changes in a downturn isn’t your ability to exit. Rather, it’s the price you receive for the underlying holdings.

The 1940 Act Interval Fund — Periodic Windows, Independent Board Oversight

You can buy into an interval fund almost exactly like a mutual fund. These investments have low minimums, often no accreditation requirement, and straightforward 1099 tax reporting rather than the more complex K-1 forms that private funds typically generate. The on-ramp is easy. But that is where the similarity ends. Liquidity looks completely different.

Interval funds open periodic repurchase windows — most commonly quarterly, though the structure permits other intervals — during which investors can submit requests to sell shares back to the fund. The fund is required to repurchase between five and twenty-five percent of outstanding shares per offer. If total requests exceed that cap, everyone gets prorated. Meaning, you receive a fraction of what you asked for, and the rest rolls to the next window.

In a stressed market, requests can easily exceed the cap when investors broadly want out at the same time. You may be waiting through several repurchase windows before you’re fully liquid. If you need cash faster, you’re stuck.

The Evergreen Fund — Conditional Quarterly Access, Manager-Controlled

Evergreen funds are perpetual vehicles with no defined end date. You can generally invest on a regular basis and request money back through periodic windows that open after an initial lockup period that typically runs one to two years.

The critical word is conditional.

Unlike interval funds, evergreen funds give the manager significant discretion over how much liquidity is offered at any given time. The manager can cap total redemptions, limit individual redemptions, move certain holdings into side pockets (assets set aside and locked until the manager chooses to sell them), or suspend redemptions entirely during periods of market stress. These terms are disclosed upfront, but most investors don’t fully absorb what they mean until they try to use them.

This is not purely theoretical. During 2022 and 2023, as interest rates rose sharply and certain asset valuations declined, some evergreen funds-imposed gates or restricted redemptions when investor demand exceeded available liquidity. In certain cases, investors who expected quarterly access experienced extended wait times and received only a portion of their requested withdrawals.

In a stressed market, the restrictive terms investors agreed to upfront simply become much more visible. Well-managed evergreen funds operate smoothly in normal conditions. When markets break down, so does the assumption of easy access.

No Liquidity by Design, with the Potential for Enhanced Returns

This is the oldest and most explicit structure. In my view, it is also the most clear about what you’re signing up for. You commit a dollar amount, and the manager draws that capital over three to five years as they find investments (capital calls). Your money is then locked in — commonly for seven to twelve years total — until the manager sells positions and distributes proceeds back to you on their timeline.

There is no redemption mechanism. No quarterly window. If you absolutely need to exit early, a secondary market may exist where another investor can buy your position. But, you should expect a meaningful discount and a process that can take months.

The return potential here is often compelling relative to other structures, in part due to this reduced flexibility. The manager may be able to make decisions based on what they believe is best for the portfolio, without the same level of redemption pressure. Investors may be compensated for accepting reduced liquidity and less control.

Liquidity is only part of the picture. There is a second issue that gets far too little attention: valuation.

In private markets, the value shown on your statement is not a market price. It is an estimate that is produced by the fund manager (typically monthly or quarterly) based on models and assumptions about what the underlying assets are worth. Unlike a publicly traded stock that reprices in real time, private assets can show stable reported values while the actual picture beneath the surface is shifting.

If you need to sell on the secondary market in a hurry, you will often receive a significant discount on your investment. Capital call funds have annual audits that provide a check, and registered interval funds are subject to SEC valuation standards with third-party oversight. But the core reality is consistent across all private structures: know who is marking your assets, how often, and whether that number reflects what the market would actually pay today.

It is one more reason the conversation has to happen before the check is written.

Here’s something I said on the panel in Washington and believe strongly: the liquidity restrictions in these structures are not necessarily flaws—they are intentional design features that can help protect investors, including those who remain invested.

When a fund has gates, redemption caps, and periodic windows, it means the manager can make decisions based on what’s best for the portfolio. They don’t have to respond to a wave of panicked redemption requests from investors who got spooked by a headline. Capital stays invested long enough for the strategy to work. Positions can be unwound at the right time, not sold at a forced discount to generate cash.

Sticky capital can make higher returns possible in certain situations. The concept of the illiquidity premium—where private market investments may offer higher returns than public market equivalent is often associated with investors’ willingness to commit for the long term. That commitment may be compensated

The problem isn’t the gates. The problem is when clients don’t know the gates exist until they try to walk through them.

The Conversation That Has to Happen First

At The Wealth Stewards, we talk about liquidity before we talk about returns, strategy, or fees.

We ask clients two things directly: What does your financial life look like if this capital is unavailable for seven to twelve years? And could you handle it — financially and emotionally — if you needed cash during a market downturn and had to wait longer than you expected to get it?

The answers determine the structure. Not the other way around.

Private markets belong in well-built portfolios. The case for private equity, private credit, and private real estate is as strong as it has ever been. But every opportunity comes packaged in a structure with specific rules. And these rules feel very different in calm markets than in stormy ones.

Our job is to make sure clients understand both versions before they write the check. Because the conversation you have on the front end is always easier than the one you have when someone calls wanting their money back and the gate is closed.

To learn more about how The Wealth Stewards can help you, please contact us today.