After earlier industry responses failed to address the key question of capital return risks in European semi-liquid funds, Paperjam followed up with Stéphane Pesch and Luis Galveias (LPEA) and Roberto Steri (University of Luxembourg) to assess the implications for investors.
Blue Owl case revives redemption risk debate
The liquidity crisis at Blue Owl Capital Corp II (OBDC II), a non-listed private retail debt fund, has raised significant questions regarding the stability of semi-liquid fund structures. After reaching its standard quarterly redemption cap of 5% of Nav, Blue Owl chose not to continue redemptions within that limit but instead froze the fund entirely and initiated a full return of capital to investors.
Stéphane Pesch, CEO at LPEA, believes that the Blue Owl scenario is “theoretically possible” in Europe and Luxembourg. He also emphasised that investors can lose capital in both liquid and illiquid funds. That is the nature of investing. “The Blue Owl case reminds people of the relevance of risk management,” he said.
Semi-liquid funds’ guardrails
In response, industry experts point to existing safeguards built into these structures —also known as 'evergreen' or 'perpetual’ funds—to prevent panic. Standard European semi-liquid products, such as the European Long-Term Investment Fund (Eltif), include minimum notice periods, redemption frequencies/gates and liquidity pockets.
These “guardrails,” largely shaped by lessons from the 2008 global financial crisis – when open-ended funds holding illiquid assets faced severe “gating” issues. Pesch highlighted that a move like Blue Owl’s—shifting from a gate to a total fund freeze—is highly unusual and potentially disruptive to different investor profiles.
These mechanisms are designed to limit investor withdrawals during periods of stress and avoid forced asset sales. Ultimately, Pesch stressed that every manager is responsible for their own strategy. A scenario à la Blue Owl may result in a major reputational fallout with investors permanently withdrawing from the firm.
Semi-liquid funds face a liquidity balancing act
The incident has reignited a broader debate about liquidity management in semi-liquid funds. These are open-ended private market vehicles that allow periodic subscriptions and redemptions while investing primarily in illiquid assets.
If you want liquidity, you will sacrifice part of the performance.
Their growth represents a significant shift in the industry, but these products require robust operational infrastructure. Success in this model depends on steady deal flow, disciplined cash-flow management and the ability to balance inflows and outflows of capital, explained Luis Galveias, chief operating officer & CSR manager at LPEA.
Pesch stressed that large GPs are fully aware of reputation risks related to redemption pressure. “If you want liquidity, you will sacrifice part of the performance. In some circumstances, they may also use corporate cash or draw liquidity from other strategies,” he added.
Galveias warned that mid-sized managers may struggle with these requirements, as the model may not be sustainable for them in the long term. However, the recent developments have shown that even large players such as Blackrock, Apollo and Ares need to cope with large outflows and resorted to “gatings”.
Secondary markets can provide some relief by enabling investors to sell their positions during periods of stress. However, these transactions often occur at significant discounts and may offer limited support when many investors attempt to exit simultaneously.
Investor education gap clouds private asset boom
The push for the “democratisation” of private assets means retail investors can now enter these markets with amounts as low as €1,000. However, there is a growing concern that these investors may not fully internalise the risks involved, argued the associate professor of empirical finance at the University of Luxembourg.
While professional investors generally anticipate liquidity constraints, retail investors may not realise that their capital can be frozen or returned unexpectedly. The former case becomes particularly problematic if investors need that capital for immediate life needs.
Steri suggested that banks selling these products may not always ensure that investors truly capture the complexity of these risks, despite standard warnings. Retail investors are not always adequately informed, partly due to limited interest and partly because product sales pressures within banks may reduce the emphasis placed on investor education.
While the industry remains optimistic about the expansion of private markets, provided that risk management continues to evolve, the education gap remains a “core problem.”
Semi-liquid funds’ reputation hinges on investor trust
Large firms like BlackRock are adapting their strategies to incorporate more alternatives—moving from a 60/40 model to 50/30/20—but they must manage liquidity pools and navigate risk management carefully to avoid high-profile failures.
Ultimately, the credibility of Luxembourg’s private market ecosystem will depend on whether managers can prove that semi-liquid structures deliver both access and resilience. Investor trust will hinge on how these products perform under stress.
