Recently, we’ve heard from several new and established investment advisers about launching a closed-end interval fund. These funds are alternative investments and a hybrid between mutual funds and traditional closed-end funds. We’re helping a few asset managers with these products, and the same is true for our business partners at the law firm, Practus, LLP.
Though interval funds have been experiencing notable asset growth over the last several years, the additional uptick in interest right now is understandable. The impact of COVID-19 on financial markets has once again brought the discussion of liquidity to the forefront, and interval funds are uniquely suitable for asset managers that want a publicly available investment fund that can handle illiquid securities while still providing periodic redemption opportunities.
John Grady, Partner at Practus, LLP, recently wrote a white paper on interval funds and noted the following important attributes.
1. They are SEC-registered.
2. They make continuous offers of their shares.
3. They repurchase their shares at net asset value (although the number of shares repurchased in each redemption period, usually quarterly, is limited).
John's white paper discusses these elements and other important topics, such as service providers, audit and compliance requirements, and taxation and distribution issues. Use the link below to access a free copy of this white paper.
BBD, an audit firm that specializes in investment companies, also published a recent article on interval funds that focuses on their valuation issues. As BBD notes, the limited redemption periods allow these funds to invest in illiquid assets because the adviser knows when to raise enough cash to meet potential redemptions. They also discuss how asset managers can incorporate valuation models into the adviser’s daily valuation process to help prepare for redemptions and the annual audit.
When it comes to launching an interval fund, there are several activities involved:
- Registering an investment adviser with the SEC
- Creating and implementing a compliance program that meets the requirements of the Investment Advisers Act and Investment Company Act
- Identifying service providers including legal counsel, fund administrator, distributor, and auditors
- Conducting the organization process that goes into creating the fund
At Joot, we can help you coordinate the organization activities between law firms and fund administrators. Since markets are down, now is the time to start because the process for launching an interval fund usually take four to six months.
If you want to talk more about interval funds and whether they’re a good fit for your strategy, use the white paper link below to provide your email address and make sure to mark the checkbox to contact you. We’ll be sure to get in touch for a follow-up.