In 2020, the world received a series of dangerous crash courses on epidemiology, exponential growth, and social psychology. When the Covid-19 pandemic broke out in the first quarter, the OECD Composite Leading Indicator showed the sharpest monthly drop in economic activity ever recorded. Governments around the world responded to the pandemic with stimulus plans unprecedented in both their scale and creativity. In a six month period, the US Federal Reserve expanded its balance sheet by more than it did during the six years of quantitative easing that followed the 2009 financial crisis. The S&P 500 plummeted over 30% earlier in the year before recovering and ending the year up double digits. Volatility and liquidity challenges led to wide dispersion in the performance of different fund structures and asset classes.
Interval funds and other unlisted alternative products demonstrated resilience amidst the chaos. With few exceptions, interval funds delivered low volatility and minimal drawdowns even during the worst part of the downturn.
Interval fund assets topped $35 billion by the end of 2020, up 12% compared to the end of 2019.
Interval Fund AUM Growth
The following chart shows the long run growth of closed end interval funds.
Capital flows and performance reshaped the composition of the interval fund sector. Credit and Real Estate interval funds continue to hold top positions as the most popular categories, based on net assets. Outsized performance from one long/short equity fund made Equity the third largest category by the end of the year. Insurance Linked Securities proved to be useful diversifiers when they maintained steady values amidst the market volatility. However, reinsurance interval funds still experienced significant investor redemptions as investors repositioned their portfolios. Multistrategy funds, including endowment funds, maintained steady performance throughout the year, but still remain a relatively small portion of the overall market.
This chart shows interval fund net assets by strategy, based on filings available as of December 31, 2020.
Premium members can download the underlying data for this chart, along with granular fund level information on historical net asset growth, by logging in and clicking on “NAV Growth.”
New Fund Launches
The SEC declared effective 11 new interval fund registration statements in 2020. Eight of these were new fund launches, bringing $7.1 billion in new equity for sale into the market.
|Fund Name||Effective Date||Investment Strategy||Maximum Offering Proceeds|
|Bow River Capital Evergreen Private Equity Fund||12/30/2020||Other||$250,000,000|
|Fundrise Real Estate Interval Fund, LLC||12/18/2020||Real Estate||$1,000,000,000|
|First Eagle Credit Opportunities Fund||11/30/2020||Credit||$2,000,000,000|
|Flat Rock Core Income Fund||10/13/2020||Credit||N/A – Created for merger|
|Lord Abbett Floating Rate High Income Fund||9/30/2020||Credit||$250,000,000|
|Primark Private Equity Assets Fund||8/24/2020||Equity||$500,000,000|
|ARCA U.S. Treasury Fund||7/6/2020||Credit||$100,000,000|
|CIM Real Assets & Credit Fund||4/30/2020||Real Estate||$1,000,000,000|
|Goldman Sachs Credit Income Fund||3/6/2020||Credit||N/A – Created for merger|
|Goldman Sachs Real Estate Diversified Income Fund||3/6/2020||Real Estate||N/A Created for merger|
|KKR Credit Opportunities Portfolio||2/28/2020||Credit||$2,000,000,000|
It was also an active year for fund conversions and M&A. Flat Rock converted its BDC into an interval fund via a merger transaction, creating the Flat Rock Core Credit Fund. For more information on the process of converting a BDC into an interval fund, see this article. Goldman Sachs took over the management contract for the Resource Real Estate Income Fund, and via merger transaction, created the Goldman Sachs Real Estate Diversified Income Fund. This is an important strategic move, reflecting a broader shift into wealth management and alternative investments for the bulge bracket investment bank. Goldman Sachs also sought to take over the management contract for the Resource Credit Income Fund via a similar transaction but they eventually abandoned the plan. Sierra Crest Investment Management subsequently took over Resource’s credit fund, which they subsequently renamed Alternative Credit Income Fund.
Fund Registration Pipeline
The pipeline of new fund launches continues to be robust. Nine new interval funds filed registration statements in 2020. As of the current date, there are 26 interval fund registrations spending approval from the SEC.
The growth of unlisted closed end funds extends beyond interval funds. Tender offer funds, which are similar to interval funds, but have different repurchase characteristics, are another popular structure. Seventeen tender offer funds filed new registration statements in 2020. For more research, analysis, and data on tender offer funds, see our recently launched affiliate site.
This is an excerpt from a report for Interval Fund Tracker Premium Members. The full report contains detailed information on interval fund performance and capital flows. Click here to sign up for Premium Questions? email [email protected]