Interval Funds - at the Intersection of Liquidity, Transparency, and Valuation

DLA Piper's handbook

Interval Funds handbook home page

Investment Management Alert

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As yet another demonstration of the investment management industry's ability to develop products to meet the demands of investors and their advisers, we have the "interval fund." These funds are SEC-registered closed-end funds that in most cases engage in continuous offerings of their securities. They typically price and sell their shares daily, but do not list them on an exchange. And they redeem shares by making periodic tenders in compliance with Rule 23c-3(b) of the Investment Company Act of 1940.

Why does this matter? What can interval funds do that other pooled investment vehicles in the marketplace cannot do (or must do differently)?

The answer is that interval funds can give shareholders and their financial professionals many of the transparency, valuation and investor protection elements of the 1940 Act. They permit investments in underlying assets that are (or may be) illiquid, yet offer investor liquidity on a periodic basis. This means that an interval fund can be a suitable vehicle in which to run "alternative" strategies – i.e., strategies that are designed to produce returns that are not highly correlated to the broader stock and bond markets. Interval funds also mesh well with certain noteworthy regulatory initiatives, making them attractive vehicles for use by independent broker-dealers and other financial advisors that must operate within the complex regulatory environment.

The purpose of this handbook is straightforward: to place interval funds squarely in their regulatory framework, discuss how they operate from a mechanical standpoint, and then cover the various investment approaches that they can incorporate, including a discussion of SEC staff positions on how interval funds may invest in private funds available to accredited investors.

Download our handbook, Interval Funds - at the Intersection of Liquidity, Transparency, and Valuation.

Learn more about interval funds by contacting John H. Grady.