Open-end funds are built on a simple promise. Investors can usually pull their money out quickly, even when the fund owns assets that may take longer to sell.

That setup works when markets are calm and investors are not leaving all at once. It becomes a problem when many people want cash at the same time, because the fund may need to sell assets faster than the market can handle.

In May 2026, the European Central Bank warned that open-end investment funds still had a major liquidity risk. The concern was strongest in areas like corporate bond funds and private credit funds, where assets can be harder to sell during stress.

The Federal Reserve made a similar point in its May 2026 Financial Stability Report. It warned that some open-end bond and loan funds could face forced selling if investor outflows became large enough.

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The structure works best when investor exits and asset sales move at a similar speed. If investors redeem slowly and the fund can sell assets without pressure, the system can stay balanced.

The weakness appears when investors can leave much faster than the assets can be sold. Corporate bonds, loans, and private credit assets may look stable on paper, but they can become hard to sell at fair prices when many funds are selling at the same time. This does not mean the assets are bad. It means the fund structure can become unstable when investors treat slower assets like a cash account.

Open-end funds give investors easier access to markets that may not always be easy to exit. The investor gets the benefit of a simple exit, while the fund carries the burden of turning assets into cash.

That trade works only when the fund has enough cash, enough time, and enough buyers in the market. If those conditions weaken, the risk moves back into asset prices through forced sales.

This is why open-end funds can spread stress even when they are not banks. The pressure does not need to start with debt or leverage. It can start with redemptions that force selling into a market that is too thin.

What persists: the demand for easy access to bond and credit markets. Investors still want broad exposure without having to trade individual securities themselves.

What can break: the belief that daily access always fits the assets underneath. A fund can be well run and still face a mismatch if investors leave faster than the assets can be sold. The structure stays strong when redemption terms, liquidity tools, and asset liquidity stay aligned. It weakens when the fund promises more speed than the portfolio can deliver during stress.

Open-end funds do not only weaken because assets lose value. They can also weaken because the exit promise becomes too fast for the market underneath.

The real issue is timing. If investors can leave quickly but the assets cannot be sold cleanly, the fund becomes a place where liquidity risk builds up and then gets released during stress.