New fund registrations are a forward-looking indicator that we can use to predict future market trends. When a new fund is preparing to launch it will first file a draft registration statement, either on form N-2(NT BDCs, interval funds, and tender offer funds), or form S-11(NT REITs). If the fund is raising capital via a public offering, then it will start raising capital once the SEC declares the registration statement effective. Usually, a fund will file several revisions and it will become effective after a few months. Some tender offer funds raise capital exclusively through private offerings, and they can start operations right after filing their N-2.

Interval fund registrations have exceeded all other types of public alternative fund for four of the last five years. In 2023, the trend accelerated: 33 new interval funds filed registration statements, compared to 13 tender offer funds, 3 public NT BDCs, and 4 NT REITs. Note this includes only public NT BDCs. For market intelligence covering private and public NT BDCs, click here.

There are 40 interval funds that have filed registration statements and are still pending effectiveness. Exactly half of these are credit strategies. Therefore, it looks like interval funds will continue to be a popular vehicle for fund managers bringing private credit strategies to a wide audience. Real estate, which accounts for 18% of funds pending registration, will continue to be a distant second. The “Other” category includes a wide range of niche strategies that may end up emerging as their own submarkets. Multistrategy funds, and hedge fund strategies are more popular in the tender offer fund space, but there are a few major players entering the interval fund market as well. Similarly, infrastructure investing, which in economic terms often combines aspects of credit, real estate, and private equity, is likely to become its own category.

What about bitcoin interval funds?

What about bitcoin? In recent years, several fund managers have registered digital asset focused interval funds with limited success. The SEC never approved any funds investing directly in bitcoin or other cryptocurrencies. Stone Ridge briefly offered an interval fund investing in bitcoin futures, but it never gained much traction.

After a long wait and a couple false starts, the SEC finally begrudgingly approved bitcoin ETFs at the beginning of 2024. The U.S. court of Appeals for the District of Columbia held that the SEC had failed to adequately disclose its reasoning for disapproving of a previous bitcoin ETF application. The approval is extremely narrow and only covers bitcoin ETFS. It doesn’t cover funds that invest in other digital assets.

For pure bitcoin exposure, investors should go with the lowest cost and most liquid option, which will most likely be an ETF. However, for active strategies covering a broad variety of digital assets, an unlisted CEF structure is a better option. As digital assets become part of the mainstream financial system, more fund managers will look for a way to bring them to a wider investor base. Bitcoin and other digital assets are the wild card for the unlisted CEF market to keep an eye on in 2024.

This is an excerpt from Unlisted Closed End Funds: 2023 Year in Review. The full version of this report (along with all the underlying data) is available for download by Premium Plus Subscribers.

Other topics covered in the report include:

• Top interval fund and tender offer fund strategies;
• Secrets of the fastest growing unlisted CEFs;
• What pending fund registrations indicate about future market trends.

Click here to sign up and access the report. Questions? Email [email protected]