Episode summary
Wealth Management Invest: The Future of Semiliquid Funds with Brian Moriarty
Summary
Brian Moriarty says the semiliquid market has shifted from being driven by private credit to being driven by private equity and venture capital. Private credit semiliquid funds have moved into modest outflows, while VC funds tied to names like SpaceX, Anthropic and AI, and private equity secondaries have taken a larger share of new money. He argues this does not look like a crisis so much as a normalization after the strong private credit returns of 2022.
He also says investors should expect softer private credit returns ahead. Lower net investment income, falling lending spreads and rising payment-in-kind usage all point to lower expected performance, even if not to widespread distress. Moriarty emphasizes that leverage helps semiliquid private credit funds look better because redemption caps and infrequent marks reduce the downside pressure that leveraged public funds would show.
On portfolio construction, Moriarty says direct lending funds have more overlap than many investors realize because large club deals show up across multiple vehicles. He contrasts that with asset-based finance and hybrid funds, which can offer different liquidity profiles. On fees, he argues disclosures are uneven and that incentive fees are effectively almost always earned, which makes apples-to-apples comparisons with public funds essential.
Key takeaways
- Brian Moriarty says semiliquid fund flows have rotated from private credit toward private equity secondaries and venture capital.
- He expects lower private credit returns because net investment income is down, lending spreads are narrowing and payment-in-kind is rising.
- Moriarty argues leverage mostly boosts semiliquid private credit by limiting downside through redemption caps and infrequent marks, not by creating more upside.
- He says direct lending portfolios overlap more than investors may think because club deals end up across multiple funds.
- Moriarty says fee comparisons are distorted because management fees and incentive fees are disclosed inconsistently across semiliquid products.
Notable quotes
“Private credit semi-liquid funds are now in outflows. Not massive but they are in outflows but the market is still growing”
“investors can expect lower returns from those products going forward”
“leverage can enhance the downside as much or more than the upside”
“there is a surprising degree of overlap in these portfolios because a lot of the larger deals, the larger loans are done as club deals”
“many of them charge incentive fees, but it was not included in the actual prospectus expense ratio”
How the episode opens
All right. Hello. Welcome to the Wealth Management Invest podcast.
I'm your host, David Bodimer with Wealth Management. We're doing a very special episode right now where we are recording live from the Morning Star Investor Conference in Chicago. So, very excited to be here.
We have some folks. We're in a nice just to set the scene a bit for folks at home. We are in this really cool glass booth.
We got folks on the outside listening in with some headphones. and I'm here with Brian Morardi from Morning Star. Brian, welcome to the show and I guess welcome to me to your conference.
Thank you for having me and welcome to Chicago. — Thank you. So before we dive into it, if you could just tell folks a little bit about what your role is at Morning Star. — Absolutely. So I'm a principal on Morning Star's manager research team, specifically covering fixed income strategies. I've been in that role for 11 years almost 12 and as part of that remmit I've done a lot of time spent a lot of time covering the semi-liquid strategies the private funds interval funds unlisted BDC's and really putting some data and some analysis around this public private convergence that Morning Star and the industry has been really keen to talk
Yeah and that's what we're going to talk about you guys put out this fantastic report I think last year was the first edition of it it's like the state of semi-liquid markets and the second edition just came out the day before we're recording this. So, I've done my best to try to digest it all. It's probably like the gold standard, I think, for the industry in terms of getting a real deep dive into what's happening with this rapidly evolving space.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- semiliquid funds
- private credit flows
- private equity and venture capital
- fund leverage and redemption limits
- fees and medalist ratings
Companies and tickers mentioned
- MORN
- Morningstar
Watch the episode
Watch “Wealth Management Invest: The Future of Semiliquid Funds with Brian Moriarty” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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