Paper Looks at Challenges and Opportunities for Interval Funds

A white paper from fund service provider Ultimus examined the growth in the interval fund market and how these funds can be launched successfully. As of June 30, 2021, there were 77 interval funds in the market totaling $42.4 billion in managed assets, the paper noted. Interval funds are continuously offered, non-listed closed-end funds. The authors list several appealing characteristics of interval funds for fund managers: (i) They offer access to illiquid alternative investments in a registered fund structure. (ii) They have low investment minimums and managers can package strategies that command higher fees than for mutual fund strategies. (iii) Interval fund sponsors can avoid the three-years-plus required to secure a Morningstar rating and start the marketing efforts for a new mutual fund. The paper also outlined the challenges of launching an interval fund, particularly the slow growth of assets. “It is difficult to get an interval fund onto distribution platforms if its assets are below $100 million, but it is a challenge to raise assets unless the fund is on a platform, which threatens its survival.” The paper also listed the hallmarks of successful interval funds, including having a well-known sponsor; having several positive quarters of performance; offering a popular asset class; and no performance fees. In the coming weeks the authors will present an MFDF webinar on launching interval funds.