Growing Interval Funds , total Interval Fund Assets

Interval Fund Market: 2017Q4 Update

 

A robust pipeline of new interval fund registrations indicates continued growth is likely throughout 2018.   Total interval fund assets now exceed $23.8 billion. Total net assets for the sector grew 56% over the most recent 12 month period, to $19.9 billion. Although newly launched funds are gaining momentum, the sector is highly concentrated in the top 10 funds.

New Fund Registrations

Fund Name Registration Date Strategy
OFI Carlyle Global Private Credit Fund 12/15/2017 Credit
Tortoise Tax-Advantaged Essential Assets Interval Fund, Inc. 12/15/2017 Credit
PIMCO Flexible Municipal Income Fund 11/30/2017 Credit
Destra International & Event Driven Credit Fund 11/15/2017 Credit
Sierra Real Estate Fund 11/13/2017 Real Estate
Broadstone Real Estate Access Fund, Inc. 10/13/2017 Real Estate

Initial registration statements are a leading indicator of industry growth. Funds filing initial registration statements in late 2017 will usually begin raising capital by late 2018.

Six interval funds filed initial registration statements with the SEC in 2017Q4, compared to nine funds in 2016Q4. PIMCO registered the Flexible Municipal Income Fund, its second interval fund.   PIMCO Flexible Credit Income Fund, launched in February 2017 and had net assets of $141.7 million as of September 30.  Medley Management registered Sierra Real Estate Fund, its third interval fund. Medley Management’s Sierra Total return fund launched in July 2017. The Sierra Opportunity Fund is still pending effectiveness with the SEC.  Four managers without any offerings currently structured as interval funds registered new funds in 2017Q4.  Notable additions to the lineup include Carlyle and Broadstone,

There are currently 23 interval funds pending registration with the SEC.  Credit strategies are by far the most popular among new entrants:

As in the prior quarter, creation of new interval funds has outpaced the creation of non-traded REITs and BDCs. Nonetheless, the new non-traded REIT entrants in 2017Q4 include several larger asset managers: Nuveen Global cities REIT,  Starwood Real Estate Income Trust, and Rodin Income Trust.

 

Blackstone dominated 2017 non-traded REIT sales, with approximately one-third of market share by sales. Meanwhile, Blackstone also registered an interval fund earlier in 2017.

New Funds Declared Effective

Fund Name Effective Date Investment Strategy Maximum Offering Proceeds
Angel Oak Strategic Credit Fund 12/1/2017 Credit $250,000,000
Pathway Capital Opportunity Fund 10/30/2017 Other $773,393,896
FS Credit Income Fund 10/3/2017 Credit $2,000,000,000

The SEC declared effective 3 interval fund registrations statements in 2017Q4.  These new funds bring over $3 billion in new shares for sale into the market. Note that Pathway Capital Opportunity Fund is formerly known as Pathway Energy Infrastructure Fund, restructured from a closed end fund focused on energy infrastructure.

Growth in Total Interval Fund Assets

The recent growth in the interval fund sector reflects increased investor demand for yield products and acceptance of the structure.  Total interval fund net assets equaled $19.9  billion, up approximately 56%, from $12.7 billion just 12 months ago.  Most interval funds use relatively moderate leverage or maintain net cash positions.  Total gross interval fund assets totaled $23.8 billion as of the most recent filings.

Broadstone Real Estate is adding an interval fund to its offerings

Broadstone Real Estate Registers Interval Fund

Broadstone Real Estate registered a new interval fund on October 13, targeting a $1 billion capital raise. According to the draft registration statement, Broadstone Real Estate Access Fund intends to invest in a portfolio of institutional quality real estate and real estate-related investments.  The portfolio will include the following asset classes:  (i) Direct Real Estate Investments, (ii) Private CRE Investment Funds, (iii) Publicly Traded CRE Securities, and (iv) CRE Debt Investments. The minimum initial investment is $2,500 for Class W shares and $1,000,000 for Class I shares.

Trends in the non-traded REIT, BDC, and interval fund markets

Interval Fund Market: 2017Q3 Update

The interval fund market continues to expand: Newly Registered Funds Fund Name Registration Date Strategy Angel Oak Strategic Credit Fund 9/15/2017 Credit VII Peaks Co-Optivist Income Fund 9/15/2017 Credit Orinda Preferred Yield Plus Fund 8/18/2017 Credit Three interval funds filed initial registration statements with the SEC in 2017Q3, compared to 4 funds in 2016Q3. Year […]

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Three Types of Interval Fund Conversions

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

VII Peaks converts its BDC to interval fund

Shareholders in VII Peaks Co-Optivist Income BDC II voted to approve conversion of the BDC to an interval fund on December 28, 2016.

Real Estate Interval Funds

Real Estate Interval Funds

Real estate interval funds are an important option for investors looking for a liquidity compromise between publicly listed REITs and private funds. David Blatt of Capstack Partners wrote recently about the use of interval funds as a way of providing more investors access to direct real estate investing:

Recently, investment management firms have begun to take advantage of the interval fund to access retail capital for real estate investments. The attractive features of the interval fund that are more conducive to individual investors are the low required investment minimums, and the transparency afforded by SEC reporting requirements. But that’s not all. Real estate focused interval funds also offer exposure to a wide range of investments including listed, non-listed, public and nonpublic investments. Altogether, these features create a means by which retail investors and their financial advisors can access higher quality/higher return alternative investments in real estate.

When one considers the pace of evolution in the real estate investment industry, one can correlate the recent acceleration of new and repurposed investment vehicles to growing interest in the asset class – REITs gained popularity in 1990s, CMBS over the 2000s, private equity funds in the last decade, and more recently, growing retail investor interest in real estate that led to the interval fund. This evolution is a reminder that while real estate is generally a high priced, slow moving, fixed asset, the groups investing in real estate remain creative and resilient in the ways they structure the investments to access its rewards, while mitigating its risks. It makes for exciting times ahead for the space.

Institutional Real Estate

According to to Interval Fund Tracker’s data, 11 active interval funds with a combined total of $4.8 billion in assets focus on real estate. The three largest funds account for about 84% of the AUM in real estate interval funds, including Griffin Institutional Access Real Estate Fund, Versus Capital Multi-Manager Real Estate Income Fund, and BlueRock Total Income (Plus) RE Fund. Also note, that many diversified interval funds such as the Multi Strategy Growth and Income Fund and the Wildermuth Endowment Strategy Fund, focus on real estate as part of a broader asset allocation strategy.

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