How are hybrid and semi-liquid structures reshaping real estate funds?

Real estate investors are demanding more flexibility without giving up long-term exposure. That shift is accelerating growth in hybrid and semi-liquid structures and putting greater operational pressure on fund managers to manage liquidity, valuations and investor expectations.

This trend is also highlighting the importance of choosing structuring jurisdictions, such as Jersey, that can support scalable, tax-neutral platforms.

In this article, Tom Stevenson and James Philpott from Ogier Global’s fund administration team explore the appeal of hybrid and semi-liquid structures and consider if this is a short-term trend or whether these asset classes are here to stay.

Why liquidity is reshaping real estate funds

Real estate has traditionally served as a stable asset for wealth building, but one of its longstanding challenges is that capital can be tied up for extended periods, usually for a minimum of five years. This can become more pronounced during periods of market uncertainty, when investors may place greater value on flexibility and access to liquidity.

Historically, investors have achieved partial liquidity by crystalising capital growth through increasing leverage and the release of equity. However, this approach is largely unfeasible in today’s market, given declining valuations and lenders’ reluctance to maintain the loan to value ratios offered in recent years. Consequently, those seeking liquidity are often faced with the prospect of expedited sales at valuations which are unfavourable to underwrite.

In response, fund managers who wish to preserve their real estate exposure are increasingly considering debt funds (which provide repayment options on the serving of short-term notice periods) or investment in the increasingly popular listed REIT. Despite these strategies, liquidity remains restricted, which underscores the growing appeal of semi-liquid funds.

Traditional close-ended real estate funds are being complemented by vehicles that offer periodic redemption opportunities, continuous or staged fund raising and longer-term capital with controlled liquidity.

Against the backdrop of defined benefit pension scheme investors reducing allocations to the “illiquids” in the United Kingdom, the eyes of the industry are now focused on the liquidity mechanisms and structures from which this investment void can be filled in the future.

These structures allow managers to retain high-quality assets while giving investors greater optionality, particularly important for wealth channels and institutional allocators managing allocation pacing.

Liquidity management in semi-liquid real estate funds

The appeal of semi-liquid structures is clear. The challenge is making them work in practice. Semi-liquid real estate strategies require controls, including:

• clear redemption policies and notice periods
• liquidity buffers and cash planning
• gating mechanisms during market stress
• transparent valuation processes

Poor liquidity management can lead to investor dissatisfaction or forced asset sales, particularly in volatile markets.

Why hybrid real estate fund structures increase operational demands

Compared with closed-ended funds, hybrid structures require:

• more frequent NAV calculations
• ongoing subscription and redemption processing
• enhanced investor communication
• careful treatment of entering and exiting investors

These demands place pressure on operating models that were built for traditional drawdown structures.

Aligning structure with strategy

Managers considering hybrid approaches should assess whether their administrator can support ongoing dealing, how valuation frequency will be managed and whether governance and reporting meet institutional standards.

Operational readiness is critical, particularly as these structures become more widely used.

For managers building these platforms, Jersey can play an important role in the structuring layer, including as a tax-neutral master fund jurisdiction supported by downstream holding structures.

Are hybrid and semi-liquid real estate structures here to stay?

Many spectators in the real estate investment space have described this shift towards liquidity as structural, rather than cyclical, and we are inclined to agree.

With defined benefit pension schemes, traditionally an anchor investor in the UK's real estate investment market, moving ever closer to maturity and “running off”, these schemes no longer present growth opportunities for managers in the space.

Growth allocation momentum is being replaced with de-risking exit strategies, as these schemes conservatively act to match liabilities and cashflows. The resulting redemption requests have become a real thorn in the side of fund managers.

Defined contribution pension scheme's (DC schemes) have long been theorised as the knight in shining armour, positioned to fill the vacuum left by these dwindling defined benefit pension schemes. However, DC schemes haven't historically allocated to real estate. 

These schemes typically have high-frequency pricing demands - sometimes daily, which doesn’t align to the traditional quarterly valuations of property. There are also operational constraints and burdens on those charged with running the governance on these platforms.

Perhaps most significantly, fee pressure in the world of DC schemes is being described as the biggest barrier to entry to real estate allocations. Deal originators are having to grapple with DC schemes demanding fee budgets in the sub-30bps arena, well below the hard regulatory cap of 0.75%. For context, we would historically expect to see fee budgets closer to 80-120bps on a traditional close-ended real estate fund.

The result is that traditional close-ended platforms are incompatible with DC scheme capital and, as a consequence, hybrid and semi-liquid structuring options look likely to prevail.

Evergreen, scalable, semi-liquid and lower-cost vehicles are likely to benefit most from the eagerly anticipated DC scheme investment into real estate. Time will tell exactly how these structures are formed, and from where, but we expect Jersey to play a critical enabling role beneath these platforms by providing a tax-neutral master fund, along with downstream holding subsidiaries that allow managers to scale quickly and efficiently.

How Ogier Global can help

Ogier's corporate and fiduciary division, Ogier Global, supports real estate fund managers with administration for semi-liquid and hybrid structures. Our team provides governance, valuation oversight and investor servicing needed to manage ongoing liquidity while protecting long term asset value.

Ogier Global also works alongside Ogier’s legal real estate team to provide a joined-up real estate offering across fund structuring, real estate finance and acquisition strategies. This gives managers access to legal, fiduciary and operational support across the full lifecycle of a real estate platform.

To learn more, contact our team below.

About Ogier

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Disclaimer

This client briefing has been prepared for clients and professional associates of Ogier. The information and expressions of opinion which it contains are not intended to be a comprehensive study or to provide legal advice and should not be treated as a substitute for specific advice concerning individual situations.

Regulatory information can be found under Legal Notice