Interval Funds
An “interval fund” is a type of closed-end fund that continuously offers new shares for sale, but buys back existing shares only during specified periods, or intervals. By limiting liquidity, a fund manager may be able to deploy strategies that allow for longer-term investments, as opposed to the traded stocks that underly most mutual funds. Because interval funds are public and registered under the Investment Company Act of 1940, they can be offered to individual investors without the burden of high minimums and net worth requirements.
Interval funds span a wide variety of asset classes, including private equity, insurance, credit and real estate. Like all other securitized investments mentioned above, shares of interval funds are not traded, and are designed to seek results that are less correlated to exchanges and based more closely on the behavior of their underlying assets.
Interval funds offer periodic redemptions of their shares back to the fund, based on an overall cap that is calculated annually and/or quarterly. One common formula is the 5% limit, which
caps the total amount of redemptions at 5% of a
company’s outstanding share value per quarter. Redemptions may be subject to a fee.
GROWTH IN INTERVAL FUND LAUNCHES, 2018-2021
Source: Interval Funds Tracker, based on SEC data. (https://www.cioninvestments.com/insights/what-are-interval-funds/? gclid=Cj0KCQiAkMGcBhCSARIsAIW6d0D_nmUfZwWWpyzhfGZKXwh8D6ewY BGF61LwlEgzmpznPWJhFwdFMp8aAgKREALw_wcB)
* Past performance is not indicative of future results.
Interval fund shares have no history of public trading, typically with no intent that the shares will be listed on a public exchange. No secondary market is expected to develop for most interval funds. Limited liquidity is provided to shareholders only through an interval fund’s quarterly repurchase offers, typically limited to a percentage of total net asset value. There is no guarantee that an investor will be able to sell all the shares that the investor desires to sell in the repurchase offer. An interval fund is suitable only for investors who can bear the risks associated with the limited liquidity and should be viewed as a long-term investment. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than the original cost, resulting in some loss of the principal amount invested. An interval fund’s investments may be negatively affected by the broad investment environment and capital markets in which the fund invests, including the real estate market, the debt market and/or the equity securities market. The value of a fund’s investments will increase or decrease based on changes in the prices of the investments it holds. There is no guarantee that the investment strategies will work under all market conditions. Investing in lower-rated securities involves special risks in addition to the risks associated with investments in investment grade securities, including a high degree of credit risk. Lower-rated securities may be regarded as predominately speculative with respect to the issuer’s continuing ability to meet principal and interest payments. The use of leverage by an interval fund will magnify the fund’s gains or losses.
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