Private Markets and Iron Law Design Constraints
The “Iron Law” of Tank Design
The optimal design of a tank is a zero-sum trade-off between firepower (offense), protection (defense), and mobility—improving any of these features comes at the direct expense of the others. A heavier gun or thicker armor demands more weight, which compromises speed and range; more speed means sacrificing protection and/or firepower. There is no free lunch in design, only a choice of compromises that best support requirements for the military objective.
— Attributed to Major General John Frederick Charles Fuller, British Military Theorist
Iron Law Constraints
Iron Law logic extends well beyond military hardware—product designers trade off functionality, cost, and time-to-market while architects trade off square footage, natural light, and structural cost.
And allocators to private markets face a similar dynamic—navigating the trade-off between investment performance, liquidity, and manager access.
The pursuit of outperformance typically means committing to longer lockups and accepting capacity constraints for top-tier managers, which erodes liquidity and limits access for new client-manager relationships. Demanding greater liquidity forces managers to hold cash buffers, secondaries, or more liquid and lower-returning assets, which dilutes performance and narrows access to managers with more accommodative redemption features. Access to top managers is typically limited to longer-term investment clients. This scarcity can force investors to allocate to lower-quartile managers or an alternative asset class or public market proxy, which can compress the very performance edge investors are seeking in the first place.
Evolution of the Drawdown Fund Structure
The emergence of the General Partner/Limited Partner (GP/LP) drawdown fund structure was a rational response to these constraints. By separating the timing of capital commitment from capital deployment, it enabled the GP to pursue illiquid, long-duration strategies without redemption pressure: capital was called only when needed and was locked for a fund life of roughly ten to twelve years.
The GP/LP structure has served as the dominant vehicle for private markets investing for more than four decades. Its design evolved to optimize the performance-liquidity-access trade-off, with many in the industry viewing the structure as the only viable approach for delivering differentiated returns and outperformance.
The Iron Law logic underpinning the GP/LP structure led many to conclude that meaningful retail access was structurally impossible: any attempt to introduce periodic liquidity would, by definition, compromise the very features that made the structure work.
Emergence of Semi-Liquid Structures
The emergence of the semi-liquid fund structure (primarily interval and tender-offer funds) was driven by the need to provide access to illiquid private market investments with periodic liquidity in a registered fund structure, with an expectation that the funds could provide a differentiated return source and outperformance versus more liquid vehicles such as mutual funds and exchange-traded funds (ETFs).
The category has grown quickly to meet that demand. Total interval and tender-offer fund assets reached roughly $277 billion as of January 2026, and 2025 set a record with 67 new fund launches, up from 49 the year before.1
The opportunity set has also broadened well beyond a single strategy—sponsors now offer semi-liquid vehicles across private credit, private equity, infrastructure, real estate, and venture-stage growth equity, giving investors meaningfully more ways to implement an allocation than what existed even three years ago.
Growth Challenges but Green Shoots Have Emerged
The category's growth has not come without friction. In private credit, elevated redemption requests at several flagship interval funds—including the Cliffwater Corporate Lending Fund and the Blackstone Private Credit Fund—exceeded quarterly repurchase caps,2,3 leaving some investors only partially redeemed and prompting a negative outlook revision from S&P Global.4
In real estate, Starwood's non-traded Real Estate Investment Trust (REIT) halted most redemptions in April 2026 amid mounting debt maturities,5,6 even as the broader real estate sector—led by the recovery from the Blackstone Real Estate Income Trust—had by then cleared nearly all of the $56 billion redemption backlog that built up during the 2022–2023 rate shock.7
Some of the current strain reflects a structure still finding its footing: sales messaging may have undersold the practical limits of "semi-liquid" to end investors, some of whom treated periodic redemption features as closer to daily liquidity than the contractual caps allow. Much of the recent pressure traces to an exogenous shock, as artificial intelligence (AI)-driven disruption raised valuation concerns across software-exposed private credit and growth-equity holdings—which was only amplified by the misunderstood and/or misplaced liquidity expectations from investors.
Despite these growing pains, a growing number of managers are delivering results closer to the design intent. The ARK Venture Fund has returned roughly 28% annualized since inception and met its Q1 2026 redemption requests entirely from cash on hand.8 Cliffwater's Cascade Private Capital Fund offers a useful contrast to its credit sibling: 21% annualized net returns since inception, with none of the liquidity strain thus far.9 Both cases underscore that performance and redemption pressure tend to track the underlying strategy more than the wrapper itself.
As track records lengthen—only 37% of interval and tender-offer funds had reached a five-year history as of 09/30/20251—and as sponsors refine redemption mechanics and disclosure, there is a reasonable basis to expect the rough edges to smooth out.
Cause for Optimism for Retail Access
The negative narrative surrounding these structures has at times been deafening—and some of it is deserved. The tradeoffs versus the GP/LP model are real and well-documented: liquidity demands compressed returns, manager access is more constrained, and the redemption stress events of the past two years have exposed the gap between investor expectations and structural reality for a meaningful number of funds.
But it is worth remembering what the GP/LP model requires from investors: capital locked up for ten to twelve years, no periodic liquidity, high minimum commitments, complex tax reporting, and access effectively limited to institutions and the ultra-wealthy.
For the vast majority of retail investors, that structure is not a benchmark to fall short of—it is simply unavailable. The relevant comparison is not semi-liquid versus GP/LP; it is semi-liquid versus no access at all.
The development of mutual funds and ETFs offer several historical parallels for semi-liquid fund development and growth. The modern mutual fund launched in 1924 but required decades of regulatory scaffolding and infrastructure development before achieving mainstream adoption. ETFs tell a similar story: launched in 1993, they held barely 1% of mutual fund assets by 2000 and needed an entirely new ecosystem of authorized participants, market makers, and brokerage platforms before crossing $1 trillion in assets seventeen years later. In both cases, the structure preceded the ecosystem, and the ecosystem took time to develop and evolve.
Semi-liquid funds are at a comparable inflection point. The category has grown from $34 billion in 2014 to $277 billion today,1 yet only 37% of funds have reached a five-year track record. The supporting infrastructure—valuation standards, advisor education, model portfolio integration, and secondary market development—is still maturing. The growing pains are real, but they are recognizable.
Viewed through that lens, the progress and emerging value proposition from fund sponsors is remarkable: leading firms have built institutional-quality portfolios within the registered fund wrapper, strengthened governance and valuation transparency, and secured access to strategies that would otherwise sit entirely beyond the retail investor's reach. The best operators are finding workable compromises within the Iron Law's constraints, calibrating liquidity sleeves, redemption terms, and portfolio construction in ways that meaningfully close the gap without eliminating the opportunity.
The critical implication for investors is that manager selection is paramount. The same massive performance dispersion within private markets is likely to emerge across semi-liquid funds as the category matures and brand recognition fades as a differentiator. Rigorous due diligence on strategy, liquidity design, fee structure, and manager access is not optional.
For those who argued the Iron Law would keep retail investors out of private markets, or relegate them to a pale imitation of it, evidence is emerging that says otherwise—the best semi-liquid structures are proving that optimization and innovation can deliver what institutions have long taken for granted.
Important Disclosures & Definitions
1 XA Investments LLC. (2026, January 31). Interval Fund Observations. XA Investments LLC. UMB Fund Services & FUSE Research Network. (2025, July). Market Opportunity and Outlook for Interval and Tender-Offer Funds. UMB Fund Services.
2 Fishlow, O. (2026, March 11). Cliffwater's $33 Billion Private Credit Fund Redemptions Reach 14%. Bloomberg. Advisor Perspectives. (2026, June 4). Cliffwater Private Credit Fund Stung by 17% Redemption Requests. Advisor Perspectives.
3 Bloomberg News. (2026, June 4). Blackstone BCRED joins private credit funds limiting redemptions. Bloomberg.
4 Ismail, R. (2026, March 18). Cliffwater Private Credit Fund's Outlook Cut to Negative by S&P. Bloomberg News.
5 Wasielewski, M. (2026, April 30). Starwood Halts Redemptions at SREIT, Says Now is Not The Time to Force Sales. Bisnow.
6 Nicholson, M. (2026, May 12). Starwood REIT Reports $4B Debt Maturity and $113M Loss After Cutting Redemptions, Distribution. AltsWire.
7 Wasielewski, M. (2025, October 10). Nontraded REITs Have Erased the Backlog of Redemptions, With One Exception. Bisnow.
8 ARK Investment Management LLC. (2026, April 23). ARK Venture Fund 1st quarter 2026 update [Press release].
9 Cliffwater LLC. (2026, January 27). Cliffwater's private equity interval fund reaches $5 billion AUM [Press release].
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