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Top three questions about interval funds

Discussion of registered alternative investment opportunities is prevalent in the asset management world today. Recently, our team has hosted roundtables at several industry events on one particular hot topic—interval funds.






Asset managers we meet are anxious to learn about the benefits of this pooled investment vehicle. Here are the top three questions about interval funds that we are being asked.

Why are we talking about interval funds now?

top three questions about interval fundsIt is true the interval fund structure is not new, UMB Fund Services has been supporting clients’ interval funds since as far back as 1998. Today, more than ever, asset managers are looking for ways to bring unique asset strategies to market. The interval and tender-offer fund structures provide access to securities not easily accessible by mutual funds, and they are allowing portfolio managers greater flexibility in their investment strategies, holdings and risk appetite.

As investors are looking for exposure to diversified investments not correlated with the broader markets, we are seeing a wide range of investments packaged in the interval or tender-offer fund wrapper—everything from complex fixed income to private equity.

What is an interval fund?

The second of our top three questions about interval funds is about definitions. Interval funds and tender-offer funds, collectively known as unlisted closed-end funds (CEFs), are making headlines as one of the latest plays in opportunistic investment product development.

Registered as investment companies under the Securities and Exchange Commission, under the ’40 Act*, unlisted CEFs are closed-end funds that are not required to provide daily liquidity, and unlike listed CEFs, they do not trade on the secondary markets.

Unlisted CEF sponsors may elect to register shares under the ’33 Act** and serve as the market maker. This allows sponsors to continuously offer shares and provide periodic redemption opportunities at the then calculated net asset value.  Whereas fund sponsors of listed CEFs sell shares of the funds in an initial public offering,

From a ’40 Act* product sponsor standpoint, unlisted CEFs have the following appealing attributes:

  • No requirement to hold annual shareholder meetings
  • Permitted (with exemptive relief) to have multiple share classes for different investor constituencies, as well as master/feeder structures for portfolio management scalability
  • Ability to invest in less liquid investments
  • Availability to individual investors without the high minimum initial investments or investor accreditation of private funds

What kind of assets can these funds hold?

The third answer to our top three questions about interval funds is all about liquidity. The fund structure depends on the fund’s holdings. If holdings can only be valued monthly or quarterly then a tender-offer fund structure usually makes sense. If holdings can be priced daily, then a sponsor may consider the interval fund structure and offer daily purchases and quarterly repurchases.

For more in-depth information on interval or tender-offer funds and UMB Fund Services’ turnkey solution to launch and service these products, visit umbfs.com/intervalfunds.

*Investment Company Act of 1940, as amended

**Securities Act of 1933, as amended
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Based on this piece, we think you might also be interested in reading the following blog posts:

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Comprehensive Report on Unlisted Closed-End Fund (Download)

The New Normal: Outsourced Private Equity Administration

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