Asset managers find themselves caught between two powerful and contradictory forces. On one hand, investors are allocating increasing amounts of capital to private credit, infrastructure, and other private market strategies in search of yield and diversification. On the other hand, these same investors increasingly expect flexibility, transparency, and, in many cases, rapid access to their capital. This tension lies at the heart of the industry’s liquidity challenge.
Liquidity management moves up the strategic agenda
The problem is not new, but it is becoming more acute. As private assets occupy a larger share of portfolios, the traditional assumption that funds can always meet redemptions without difficulty is becoming harder to sustain. The industry response has been meaningful. Semi-liquid and evergreen structures have emerged as effective mechanisms aligning access more closely with long-term nature of private assets while improving liquidity frameworks. Yet they do not fully eliminate the fundamental mismatch between long-dated investments with shorter-term investor expectations but this midway solution is appealing and accelerating: global private market assets are expected to exceed USD 30 trillion by 2030, while private credit could grow from USD 1.7 trillion in 2024 to USD 4 trillion by 20301.
Simultaneously, investor demand continues to push managers further toward alternatives. Approximately 30% of investors plan to increase their allocations to alternative assets, while 61%1 consider alternatives a priority for discussion with their financial advisers. Consequently, the industry’s growth opportunity is becoming inseparable from its liquidity challenge.
Market predictability has also declined. Geopolitical tensions, heightened interest-rate volatility, and shifting capital flows have increased the likelihood of sudden liquidity shocks. As a result, asset managers are moving away from periodic liquidity assessments in favor of continuous monitoring and dynamic stress testing.
Liquidity management is increasingly shifting from a compliance exercise to a core risk-management capability
Making liquidity central to product innovation
Regulators are reinforcing this shift to liquidity.
The implementation of AIFMD II in Europe and the evolution of UCITS liquidity rules reflect a broader change in regulatory thinking. Supervisors are no longer focusing solely on whether funds can meet redemptions under normal market conditions. They increasingly expect managers to demonstrate how portfolios would behave under severe but plausible stress scenarios.
This shift is also pushing liquidity risk from the banks onto the “buy-side, as stricter banking regulations reduce the ability of dealers to act as the traditional liquidity backstop. Liquidity management is moving from a back-office process to a critical governance issue, scrutinized by risk committees, boards, and regulators alike.
Private credit illustrates the liquidity dilemma particularly well.
The asset class has enjoyed remarkable growth, attracting both institutional and wealth investors. This continued expansion places greater emphasis on liquidity planning and portfolio resilience. Beyond monitoring risks exposure to rising credit deterioration and defaults, managers must ensure that fund liquidity remains consistent with the long-term nature of the underlying assets , particularly during periods of strong client demand for more liquidity.
As ETFs scale, liquidity takes center stage.
While passive ETFs dominate total assets, the active segment is growing at a breakneck pace. Globally, active ETF assets hit a record USD 2.49 trillion in June 2026, and in the U.S., active strategies now drive a massive 85% of new ETF launches2.
The growth of active ETFs and increasingly sophisticated redemption mechanisms requires asset managers to coordinate closely with market makers, authorised participants, and service providers. In this context, liquidity is as much an operational challenge as it is an investment one.
Efficiently connecting operations acts as a liquidity driver
Operational pressures are adding a further layer of complexity.
Liquidity can no longer be managed in isolation from collateral, treasury, and funding considerations. Firms are investing heavily in cash forecasting, collateral optimisation, and real-time visibility of exposures to anticipate liquidity needs before they become critical.
Technology offers some promise.
Tokenization, digital cash, and programmable collateral have the potential to make the movement of assets and liquidity more efficient. Real-time settlements and automated collateral management could reduce friction across the investment chain. However, technology cannot solve the fundamental issue: tokenizing an illiquid asset does not make it liquid. A private asset remains only as liquid as the demand for it in the secondary market.
Conclusion
The industry’s challenge, therefore, is not merely to create more liquidity, but to manage expectations around it. The winners will be those firms capable of combining private-market growth with robust liquidity governance, advanced risk analytics, and integrated treasury capabilities.
Ultimately, liquidity has become more than a portfolio characteristic. It is a source of competitive advantage and, for many firms, a definitive test of long-term credibility.
Ultimately, liquidity has become more than a portfolio characteristic. It is a source of competitive advantage and, for many firms, a definitive test of long-term credibility.
Sources:
1 2026 EY Future of Asset Management Study
2 ETFGI, Global Active ETF and ETP Industry Landscape, June 2026
