Three funds in the process of converting to interval fund provide examples of three different fund conversion archetypes. Griffin Capital is using its recently launched interval fund to acquire its BDC. VII Peaks is directly converting its BDC to a new interval fund. Pathway Energy Infrastructure Management is converting an unlisted closed end fund.
Griffin Capital: Merger Transaction
Griffin Capital is using another interval fund that it Sponsors to acquire its BDC. Factright covered this transaction in detail:
Once this transaction is complete, the investors in the BDC will hold Class F Shares in the Griffin Institutional Access Credit Fund, an interval fund. Investment in an interval fund is subject to structural differences as compared to a BDC. Additionally, while both funds have similar investment objectives, Griffin Credit has a broad credit focused investment mandate, of which the BDC’s lower middle market directly originated loans are just one sleeve.
Shareholders in Griffin’s BDC approved this transaction earlier this month.
VII Peaks: BDC to Interval Fund Conversion
Shareholders in VII Peaks Co-Optivist Income BDC II voted to approve conversion of the BDC to an interval fund on December 28, 2016.
The new interval fund, known as VII Peaks Co-Optivist Income Fund will then continue raising capital, targeting a raise of up to $100 million. Unlike the Griffin transaction, the VII Peaks transaction is not a merger. The interval fund entity will not hold any assets prior to the transaction. A lso, VII Peaks is effectively raising its fees after the transaction since it will start charging a managment fee based on gross assets, rather than net assets.(Griffin did the opposite in its transaction)
This reorganization will be complete once the registration statement for VII Peaks Co-Optivist Income Fund is complete. The delay may have been caused by accounting issues at the BDC.
Pathway Energy Infrastructure: CEF Conversion
On July 26, 2017, the board at Pathway Energy Infrastructure Fund, an unlisted closed end fund, approved a proposal to convert to an interval fund
Because of Pathway’s structure, this process is relatively simple. Shareholders just need to vote in favor of the adoption of a fundamental policy to make repurchase offers at periodic intervals pursuant to Rule 23c-3(b)(2)(i) under the 1940 act. Once the fund adopts this fundamental policy, it becomes an interval fund.
Pathway is also vringing several other proposals to shareholders. Notably, the manager is broadening the investment strategy and changing the fund name to “Pathway Capital Opportunity Fund.”
Activists in the publicly traded space could use an interval fund conversion to boost CEF valuations. Theoretically persistent discounts of traded CEFs were the reason for the creation of interval funds.