Roundtable: Is the interval fund an alternative investment or a mutual fund?
- May 1, 2020: Vol. 7, Number 5

Roundtable: Is the interval fund an alternative investment or a mutual fund?

by contributing executives

Larry Lyons, co-president and due diligence officer, Kalos Financial

It depends on who you ask. Custodians resist holding them because they claim that accounting for the redemption requests are problematic and is not necessarily an automated process for them. We have personally experienced differing opinions among custodians and have had one treat them like a mutual fund and another as an alternative investment, which carries higher fees to register them and hold in the client’s account.  Our position is that we treat them like a mutual fund since they are registered under the 1933 and 1940 Act, like other mutual funds.


Catherine Bowman, partner, The Bowman

An interval fund is ordinarily a nontraded investment vehicle that has the ability to invest in a broad range of traded and nontraded investments. The key to determining whether an interval fund should be considered a complex product from a due diligence perspective is to look to the underlying investments and the potential liquidity. If the underlying investments would, on their own, be considered a complex product and thus would require a more thorough due diligence review, that is how an interval fund should be evaluated. An interval fund is an illiquid product that offers to repurchase shares from investors on a periodic basis (i.e., quarterly, annually, etc.) with a limit on the number of shares it will repurchase. Not all 40 Act funds should be lumped into a single category.


Christopher Brodhead, managing director, Benefit Street Partners

We absolutely view interval funds as an excellent format for investors to access alternative investments. For the retail investing populous, interval funds represent the further democratization of investment in alternatives. While most 40 Act mutual funds — even those that hold assets classified as “alternatives” — closely track the volatility of the broader markets, interval funds may utilize a daily NAV pricing methodology that incorporates private market valuations for their underlying, non-publicly traded holdings, thereby reducing market correlation and fund volatility. Additionally, the “interval” liquidity feature of these funds serves as a governor on fund flows.


Austin Gross, coordinator of marketing and due diligence, Geneos Wealth Management

We consider interval funds to be alternative investments. Although they are 40 Act funds and offer more liquidity than traditional alternative investments, they simply don’t act like a traditional mutual fund that is liquid daily. Our stance is that a client needs to be fully aware of the limited quarterly liquidity options specific to the fund they are buying. The absence of daily liquidity and the potential for only getting a pro-rata portion of a quarterly redemption request is why we require additional disclosures and treat interval funds like alternative investments.


Martin Dozier, attorney, Alston & Bird

It is a hybrid between them. While mutual and interval funds share similarities, including mandatory periodic repurchases, an anticipated perpetual life, and ease of investor subscriptions, there are significant differences. A mutual fund cannot invest more than 15 percent of its net assets in illiquid investments, which can limit its investment strategies. By contrast, an interval fund has few limitations on the amount of illiquid investments it can hold, enabling fund managers to pursue a wide variety of alternative asset classes, like real estate or corporate loans, making it an ideal vehicle for alternative asset managers seeking to attract retail capital.


Josh Hoffman, managing director, Bluerock

Interval funds share many of the same attractive investment features as traditional mutual funds, including low investment minimums and a professionally managed pool of underlying investments in a range of asset classes, with two primary distinctions: 1) interval funds have the ability to invest in more illiquid assets (more than 15 percent of the fund), which provides investors access to investments previously reserved for institutional investors; and 2) interval funds provide shareholders liquidity options through share repurchase offers on an “interval” basis (typically quarterly) versus daily redemptions. Interval funds are attractive because they aim to provide investors with alternative, income-producing investments that have low correlation to the broader market.

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