A Federal Reserve staff note found perpetual non-traded BDCs put 93.4% of their portfolios in private credit, run average leverage of 0.90 and keep almost nothing in short-term liquid assets. Interval funds, the most accessible wrapper, have drifted to nearly half private credit.
Private credit sold to individual investors promises something close to a public fund's convenience with a private loan's yield. A new analysis from Federal Reserve staff shows how thin the cushion between those two promises can be.
The note, "The Rise of Semiliquid Funds for Retail Investors," published Wednesday by Fed Board economists Logan George and Chaehee Shin, lays out side by side the three vehicles that have carried private markets into wealth management: interval funds, tender offer funds and perpetual non-traded business development companies. It uses data through the end of 2025 for 136 interval funds, 71 tender offer funds and 52 non-traded BDCs. The note carries the standard disclaimer that the views are the authors' own.
The numbers
Non-traded BDCs, which held about $307 billion in assets, are the most concentrated. Private credit made up 93.4% of their portfolios in aggregate. Their average leverage was 0.90 times, against 0.27 for interval funds and 0.09 for tender offer funds. Short-term liquid assets were 0.2% of holdings, compared with 3.0% for interval funds and 8.8% for tender offer funds.
Interval funds have changed the most. As of the end of 2025, private credit accounted for 49.5% of their portfolios, up from about 20% at the start of the sample.
The private loans themselves pay well. Average annualized rates were 8.5% in BDCs, 7.3% in interval funds and 8.7% in tender offer funds, with average default shares of 1.4%, 0.6% and 2.4%.
Where liquidity actually comes from
The structures differ in what they promise. Interval funds must offer to buy back 5% to 25% of shares at set intervals, and they are the only one of the three with a liquidity requirement, which applies only during the repurchase window. BDC repurchases are typically capped near 5% of net asset value a quarter and can be modified or suspended. Tender offer funds buy back shares entirely at their board's discretion.
Put together, the vehicle with the most private credit and the most leverage also holds the smallest share of short-term liquid assets, relying on loan repayments, interest and its discretionary caps to meet withdrawals.
Queues, not runs
The staff note describes how stress appears in these funds. Rather than outflows, it shows up as redemption queues: requests pile up beyond what the fund will honor and are paid pro rata. The authors point to prorated withdrawals at large private-credit managers earlier this year and to the gating of non-traded real estate funds from 2022 to 2024. They also flag that valuations of the underlying loans are hard to observe.
Market implications
For managers, the note offers an official dataset that critics and regulators can cite, arriving as withdrawal requests ease but remain heavy: in the third quarter, requests fell at 13 of the 15 non-traded BDCs Fitch Ratings tracks, yet nine still drew more than their 5% quarterly caps. It carries no policy proposal, but it frames the issue in the terms supervisors use: leverage, liquidity and valuation.
For investors, the takeaway is structural. A cap of 5% a quarter means a full exit can take years in a stressed market, and the figures suggest the funds are likely relying on that cap rather than on cash reserves.
What to watch
Fourth-quarter redemption requests at the largest non-traded BDCs, any move by regulators to require liquidity buffers, and whether interval funds continue to add private credit at the pace the data show.