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Over the past five years, the interval fund market has experienced explosive growth, as the structure has attracted both managers and investors by expanding access to illiquid alternative investments in a registered fund structure. While many managers are eager to launch an interval fund, the process can be more difficult than one might expect. Managers need to understand and prepare for a variety of challenges in order to be successful.
For example, the registration of an interval fund is not its starting point; the practical launch is when it reaches $100 million in AUM. This phase can be thought of as the interval fund “valley of death,” a term borrowed from the technology industry that refers to the gap between a brilliant idea and its successful commercialization. Reaching $100 million in AUM is important for a variety of reasons: Below the $100 million mark, the fund will find itself eating its management fees as managers waive fees to keep expense ratios in line. It may also be difficult to get a smaller fund onto a custody platform.