To assist advisers considering the unlisted closed-end fund wrapper for new products, Ultimus collaborated with Interval Fund Tracker to examine predominant fee structure options and trends across various strategies in the interval fund marketplace targeted to retail and high-net-worth investors.

Click here to access the full report.

In an increasingly competitive capital raising environment, asset managers need to differentiate themselves by developing alternative investment strategies that add true value to investor portfolios. They also need to innovate in terms of product structure. Interval funds offer a compelling option for active managers with proven strategies to raise capital from the widest audience possible. For investors, an interval fund is often the best way to access asset classes and strategies invested in real estate and private/structured credit that have been typically reserved for institutions. Many of the world’s top fund managers have launched interval funds in recent years and the interest in these products continues to grow as more advisers look to bring unique asset classes to a wider audience.

Before entering the interval fund market, an asset manager should have a solid understanding of the competitive landscape. One area of focus for asset managers new to this space is fee structures. This report uses Interval Fund Tracker’s database to provide a broad overview of fee structures across today’s interval fund market. It includes detailed quantitative analysis of fee levels for different strategies, and trends across the entire industry.

Pricing Strategies for Retail Oriented Interval Funds

The demand for alternative strategies designed for the retail marketplace has been expanding rapidly in recent years, reaching $132Bn across 183 interval and tender offer funds as of December 31, 2022. Typically, products targeted to the retail investor will operate as an interval fund, as they will have a daily net asset value per share (NAV) and are accessible by financial advisers and investors through similar channels as mutual funds. Tender offer funds most often strike a monthly or quarterly NAV and may be restricted to accredited or qualified investors; as a result they are distributed more similarly to private funds, and require subscription documents through a more manual purchase process. It is more common to find less-liquid holdings in tender offer funds. The current market is dominated by fund of funds, private equity and other more difficult to value strategies. This paper focuses on products structured as interval funds, which are targeted to the broadest possible market of investors.

Reaching critical mass early in an interval fund’s life is important and can help build momentum to open up new distribution outlets and attract additional assets. In the early years of an interval fund, total fund expenses can be quite high. High expense ratios can turn off many investors, as can the inability to redeem as easily as open-end products. Therefore, most interval fund managers will waive fees or cover expenses for the first few years of a fund’s existence. This report examines how expense reimbursements and recoupments can influence net expense ratios throughout the lifecycle of a fund.

Before entering the interval fund market, an asset manager should have a solid understanding of the competitive landscape. One area of focus for asset managers new to this space is fee structures. This report uses Interval Fund Tracker’s database to provide a broad overview of fee structures across today’s interval fund market. It includes detailed quantitative analysis of fee levels for different strategies, and trends across the entire industry.

This is an excerpt from Pricing Strategies for Retail Oriented Interval Funds. Click here to access the full report.