The Math Is the Math

Semi-liquid doesn't mean liquid. Here's what that looks like for investors.

The entire economy values immediacy: X and TikTok over long-form media alternatives; two-year job stints over careers; listening to podcasts at 2x speed. Beyond being a cultural phenomenon, it’s impacting financial services real-time. We trade stocks from our phones, settle crypto around the clock, and increasingly expect our capital to move as fast as everything else in our lives.

Investment structures are following suit. Semi-liquid funds — including non-traded BDCs, interval funds, evergreen vehicles — are growing in popularity (both on a count and aggregate NAV basis). This trend suggests investors want yield, but they want optionality on their time horizon even more.

The problem is that (I can’t believe I’m saying this) semi-liquid doesn’t mean liquid. It means partially liquid, sometimes, at the manager’s discretion. Occasionally, that distinction gets tested. Alternative investment managers are down meaningfully since December 31, 2025, with recent events at Blue Owl Capital pouring fuel on existing concerns about the structural integrity of semi-liquid strategies.

What Happened at Blue Owl

Blue Owl Capital Corporation II (OBDC II) was a non-traded BDC launched in 2016, marketed primarily to retail and high-net-worth investors. The fund deployed capital into U.S. middle-market direct lending, with underlying loan maturities ranging from 3 to 10 years.

The fund itself offered quarterly tender offers capped at approximately 5% of NAV per quarter, and priced at the most recently calculated net asset value. Critically, these tenders were discretionary. The board had complete authority to decide whether to conduct a repurchase, and on what terms. There was no regulatory obligation to offer redemptions at all.

For years, this worked. OBDC II delivered a 9.3% annualized return from inception through September 2025, roughly in line with the Cliffwater Direct Lending Index. Eventually, however, redemption requests exceeded the 5% quarterly cap, and Blue Owl’s first attempt at a resolution made things worse.

In November 2025, the firm proposed merging OBDC II into its publicly traded counterpart, OBDC. The problem: OBDC’s market price traded at a roughly 20% discount to its stated NAV. The merger would have effectively forced OBDC II investors to accept an immediate 20% haircut on paper. The backlash was immediate, and Blue Owl scrapped the deal within days. It also, however, halted OBDC II redemptions (which did not return).

On February 18, 2026, Blue Owl announced it would permanently eliminate quarterly tender offers in OBDC II, replacing them with periodic return-of-capital distributions at the board’s discretion. Simultaneously, Blue Owl disclosed the sale of $1.4 billion in direct lending assets across three funds ($600 million of which came from OBDC II) at 99.7% of par. The proceeds would fund an initial distribution of roughly 30% of NAV to all OBDC II shareholders.

Justifiably, the event was framed as an acceleration of liquidity, but the implication is clear: the semi-liquid product is now in wind-down. Investors will receive capital back on the manager’s timeline, funded by whatever combination of loan repayments, asset sales, and earnings the board deemed appropriate.

The Distinction That Matters

The Blue Owl episode is instructive not because it’s unique, but because it cleanly illustrates a tension that exists across every semi-liquid fund structure: the gap between fund-level liquidity terms and portfolio-level realization.

Fund terms govern how fast capital can leave. A 5% quarterly gate implies roughly 5 years to return 100% of capital under orderly conditions.

Portfolio tenor governs how fast the manager can actually generate cash. If the underlying book is direct lending with a weighted average life of 7 years, the manager is dependent on loan maturities, prepayments, and secondary market sales to source liquidity. In a stress scenario, the most liquid positions get sold first (exactly what Blue Owl did). What remains is, by definition, harder to sell.

The wind-down timeline is the longer of the two. And when sentiment turns and redemption requests spike simultaneously, both clocks start ticking at once. The question isn’t whether these products deliver yield, but whether the liquidity promise embedded in their structure can survive contact with a market that actually tries to use it. This same tension is now being stress-tested in a newer context.

The Full Risk Curve, Onchain

Onchain finance has been migrating up the complexity curve for over a decade. It started with crypto-native assets (tokens that were born digital and traded 24/7 by default). We have since seen stablecoins and tokenized money market funds achieve a modicum of success. The next logical step is to the rest of the investment risk spectrum: corporate credit, private lending, real estate, structured products, etc.

It’s already happening. It somewhat has to, because the infrastructure being built onchain demands it. Autonomous portfolio management, agentic rebalancing, programmable collateral, atomic settlement don’t work seamlessly if the only yield-bearing digital assets available are stablecoins and governance tokens. The onchain financial stack needs the full risk curve to function as a complete system.

But as you move up that curve, the assets get less liquid. Take a tokenized private credit fund, for example. The token representation settles in seconds, but the underlying loans still mature in 7 years. This is the central tension of the current tokenization cycle.

Three Angles on the Liquidity Problem

The most interesting work is happening in layers, with each one revealing both what’s possible and where the constraints reassert themselves.

Infrastructure: Morpho built permissionless, overcollateralized lending infrastructure for onchain markets. Capital suppliers deposit stablecoins into curated vaults; borrowers post tokenized collateral and access liquidity in real time. It works, but with a caveat. Capital supply into vaults accepting assets with duration risk (like fund shares) is dwarfed by markets featuring instantly liquidatable collateral. Lenders, unsurprisingly, prefer collateral they can sell in a block, not collateral that matures.

Issuer Strategy: Midas and Fasanara tokenized Fasanara’s F-ONE fund as mF-ONE. Qualified investors can post mF-ONE as collateral on Morpho and borrow USDC against it around the clock. The product scaled to roughly $170 million in AUM within months, before Fasanara marked down approximately 2% of the fund’s value to reflect updated loan performance. The adjustment rippled through to the Morpho vault built on top of it. The infrastructure worked exactly as designed. The loans simply didn’t perform exactly as modeled.

Secondary Liquidity: Uniform Labs built Multiliquid as dedicated secondary liquidity infrastructure for tokenized assets. Their recently launched redemption facility on Solana, capitalized by Metalayer Ventures, allows holders of supported tokenized assets (from issuers including VanEck, Janus Henderson, and Fasanara) to convert positions into stablecoins at any time rather than waiting for issuer-controlled windows. The facility acquires positions at a discount and holds them to maturity or redemption, earning the underlying yield plus spread. In the interim, that capital (presumably) sits in instantly redeemable assets. Whether the discount compensates for the carry depends on questions that don’t have answers yet: What’s the market-clearing price? How large are redemptions? How often? Under what conditions?

The Math Is the Math

Each of these onchain efforts solves a real piece of the puzzle. But none of them can change the underlying portfolio math. A tokenized private credit fund with a weighted average life of 7 years is, at the end of the day, a 7-year portfolio. Its return profile, liquidity characteristics, and risk pricing are inherent to that fact.

You can build a liquidity sleeve from onchain treasuries to buffer redemptions. You can create secondary markets to provide exits at a discount. You can enable borrowing against the position to unlock interim capital. Each faces the same tradeoff: liquidity costs yield.

The opportunity isn’t to eliminate that tradeoff. It’s to build products that are honest about it from inception. Products that manage tenor deliberately, size liquidity against real redemption behavior, and give investors continuous visibility into what they own and what their options are. The infrastructure to do this exists now. Whether the products built on top of it respect the math is a different question entirely.

Disclaimer(s)

This report is for informational purposes only and does not constitute investment, legal, tax, or financial advice. The opinions expressed are those of the author(s) and are based on publicly available information and analysis. They are subject to change and may not reflect the latest developments.

Readers should consult with independent advisors familiar with their individual circumstances before making any investment or financial decisions. The author(s) and publisher are not responsible for any losses resulting from reliance on the information in this report.

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