Interval Fund Market: 2018Q2 Update

Interval Fund AUM growth continues apace.  Total interval fund net assets equaled $23.3  billion as of the most recent public filings available at the end of 2018Q2, up 48% compared to the prior year, and 9% compared to the prior quarter.

Filings released subsequent to the end of the quarter increased the total net assets to over $24.9 billion.

Interval fund assets remain highly concentrated. Although there are over 50 active interval funds,the five largest alone account for approximately two-thirds of total net assets.   The following table shows the ten largest funds by net assets based on data available as of July 13, 2018:

 

Fund Reporting Period Net Assets MRQ* % of total
Stone Ridge Trust II(Stone Ridge Reinsurance Risk Premium Interval Fund) April 30 $6,057,814,943 24.9%
Stone Ridge Trust V February 28 $3,166,896,731 13.0%
ACAP Strategic Fund March 21 $2,685,832,936 11.0%
Versus Cap Multi-Manager RE…LLC March 31 $2,184,487,819 8.8%
Griffin Institutional Access RE Fund March 31 $2,143,713,412 9.0%
Stone Ridge Trust III April 30 $1,548,580,667 6.4%
Total Income (plus) RE Fund March 31 $930,960,667 3.8%
Pioneer ILS Interval Fund April 30 810230127 3.0%
Versus Capital Real Assets Fund LLC March 31 $802,733,509 3.3%
Invesco Senior Loan Fund February 28 $740,187,763 1.7%

* July 8, Stone Ridge Trust II released a new filing indicating net assets have increased from $5.02 billion to $6.06 billion.

Fastest Growing Interval Funds

Twenty nine active interval funds reported net asset growth in the most recent quarter. Fourteen reported a decrease, and seven reported no change.  The five fastest growing interval funds alone accounted for over 70% of the quarterly increase in net assets for the entire niche. Astute readers will notice substantial overlap between the lists of largest and fastest growing interval funds. The following list shows the ten fastest growing interval funds, based on net asset growth in the most recent reported quarter

 

Fund Date of Reporting Period Net Assets Increase MRQ
Stone Ridge Trust II(Stone Ridge Reinsurance Risk Premium Interval Fund) April 30 $1,040,278,920
ACAP Strategic Fund March 31 $275,233,158
Stone Ridge Trust V February  28 $266,877,918
Versus Capital Real Assets Fund LLC March 31 $238,077,084
Versus Cap Multi-Manager RE…LLC March 31 $188,599,970
Weiss Strategic Interval Fund March 31 $175,567,199
PIMCO Flexible Credit Income Fund March 31 $147,093,000
Pioneer ILS Interval Fund April 30 $133,811,479
Griffin Institutional Access RE Fund March 31 $120,362,565
Total Income (plus) RE Fund March 31 $65,535,061

 

Fee structures are becoming more standardized, and several service providers have become critical to the interval fund ecosystem.  For additional detailed information on fund structure trends in the interval fund space click here.

Pipeline of new funds

Growth of the interval fund pipeline accelerated in 2018Q2.   Pace of fund registrations and launches is a strong leading indicator of future sector growth.

New Fund Registrations

Seven  interval funds filed initial registration statements with the SEC in 2018Q2.

Fund Registration Date Strategy
Oppenheimer ILS Interval Fund 2018-06-13 Insurance Linked Securities
American Beacon Apollo Total Return Fund 2018-06-11 Other
Hatteras Reinsurance Fund 2018-05-15 Insurance Linked Securities
City National Rochdale Strategic Credit Fund 2018-05-14 Credit
FS Multi-Alternative Income Fund 2018-04-17 Other
Variant Alternative Income Fund 2018-04-13 Credit
Savyon Trust Group, Inc. 2018-04-10 Credit

Credit strategies, broadly defined, continue to be the most popular among fund managers getting ready to launch an interval fund.

New Funds Declared Effective

The SEC declared effective 5 interval fund registrations statements in 2018Q2. Additionally, one interval fund offering shares via a private offering started raising capital in 2018Q2. This is an acceleration in pace compared to prior quarters.

The public interval fund offerings declared effective in 2018Q2 are shown in the following table:

Fund Name Effective Date Strategy Maximum Offering Proceeds
American Beacon Sound Point Enhanced Income Fund 2018-06-29 Credit $250,000,000
NexPoint Latin American Opportunities Fund 2018-06-25 Credit & Equity $100,000,000
OFI Carlyle Global Private Credit Fund 2018-05-31 Credit $1,000,000,000
NexPoint Healthcare Opportunities Fund 2018-05-10 Credit & Equity $100,000,000
Destra International & Event Driven Credit Fund 2018-05-09 Credit $126,000,000

(Note the Flat Rock Opportunity Fund also launched during the first week of the third quarter. It was declared effective on July 2)

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Interval fund AUM growth continues at a robust pace

Interval Fund Market: 2018Q1 Update

Interval fund AUM continues to grow. Total interval fund net assets equaled $21.2 billion as of the most recent public filings, up 58% compared to the prior year, and 7% compared to the prior quarter.

Interval fund AUM growth in recent months has been driven by increasing acceptance from institutional investors and fiduciary investment advisers. Most sales of new share classes have been without sales commission.

Fastest Growing Interval Funds

Thirty-two active interval funds reported net asset growth in the most recent quarter. The ten fastest growing interval funds accounted for over 90% of the quarterly increase in net assets for the entire niche. The following list shows the ten fastest growing interval funds, based on net asset growth in the most recent reported quarter

 

Fund Date of Reporting Period Net Assets Increase  MRQ
Versus Capital Real Assets Fund LLC December 31, 2017 $171,438,620
Stone Ridge Trust V November 30, 2017 $170,501,396
Griffin Institutional Access RE Fund December 31, 2017 $149,906,670
Versus Cap Multi-Manager RE…LLC December 31, 2017 $149,235,268
Stone Ridge Trust III October 31, 2017 $143,110,907
ACAP Strategic Fund December 31, 2017 $139,268,922
PIMCO Flexible Credit Income Fund December 31, 2017 $135,953,000
Total Income (plus) RE Fund December 31, 2017 $79,030,078
RiverNorth Marketplace Lending Corp December 31, 2017 $76,703,147
Stone Ridge Trust II(Stone Ridge Reinsurance Risk Premium Interval Fund) October 31, 2017 $67,352,205

Catastrophe events in 2017 including hurricanes Harvey, Irma and Maria, as well as the California wildfires have impacted the insurance linked securities sector. Consequently, asset growth at the Stone Ridge funds slowed down in late 2017, but demand from new investors kept them among the fastest growing funds. Pioneer ILS Inverval fund did experience modest outflows, and the most recent NAV is 8% below the prior quarter Nonetheless, catastrophe bonds continue to be a popular asset class among institutional investors. Investment Manager Marco Pirondini, quoted in Barrons recently, emphasized reinsurance as a source of income not correlated with the broader capital markets.  The insurance linked securiites sector accounts for 33% of total interval fund AUM.

Real estate strategies expanded rapidly in late 2017. Both of Versus Capital’s funds are rapidly expanding. Bluerock, which manages the Total Income (Plus) Real Estate Fund, has experienced increased fundraising across its entire platform. Likewise,  Griffin Institutional Access Real Estate Fund is among the fastest growing funds, and recently crossed the $2 billion mark. 

Pipeline of New Interval Funds

New fund registrations and launches  continued at a robust pace in 2018Q1.  This is the earliest leading indicator of future interval fund AUM growth.

New Fund Registrations

Four interval funds filed initial registration statements with the SEC in 2018Q1, each from experienced asset managers using the interval fund structure for the first time.

 

Fund Name Registration Date Strategy
Cliffwater Direct Lending Fund 2018-03-30 Credit
Flat Rock Opportunity Fund 2018-02-20 Credit
American Beacon Sound Point Enhanced Income Fund 2018-02-09 Credit
Weiss Strategic Interval Fund 2018-02-01
Long/Short Equity

Cliffwater Direct Lending Fund will focus on directly originated loans, using a multi-manager approach to allocate among multiple subadvisers. Cliffwater LLC will serve as the adviser.  Cliffwater LLC is widely known for its research in the credit space.  It created the Cliffwater Direct Lending Index, and the Cliffwater BDC Index.

Flat Rock Opportunity Fund will primarily invest in equity and junior debt tranches of CLOs. It may also invest in senior secured loans. Flat Rock Global, LLC advises the fund. Robert Grunewald founded Flat Rock in 2017. He previously ran Business Development Corporation of America and has worked with several asset managers and specialty finance firms.  Flat Rock Global also advises Flat Rock Capital Corp, a newly launched non-traded BDC.

American Beacon Sound Point Enhanced Income Fund will invest in a variety of credit-related instruments.  Targeted assets include corporate obligations and securitized and structured issues of varying maturities. American Beacon Advisers is the adviser, and Sound Point Capital Management LP is the sub-adviser. Sound Point has a total of $15.6 billion under management.  It also subadvises InPoint, a newly launched non-traded mortgage REIT that is raising capital in the independent broker dealer and RIA space.

Weiss Strategic Interval Fund will maintain both long and short positions in a variety of equity securities. Targeted exposure is 130% long/30% short. Weiss Multi-Strategy Advisers LLC is the adviser. Weiss Multi-Strategy Advisers has a total of $1.4 billion in assets under management.

New Funds Declared Effective

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Interval Fund Sales Charges -Institutional Investors

Institutional Investors Driving Interval Fund Growth

Interval funds are increasing in popularity among institutional investors and RIAs.  One way to see this is to analyze the sales charge levels across available interval fund share classes:

Interval Fund Sales Charges -Institutional Investors

(Premium members can view an interactive version of this chart, and download the underlying data)

The majority of available share classes currently in the market have no sales charge at all.  Less than a third of actively distributed share classes have sales loads above 4%. Consequently, RIAs have been quicker to embrace interval funds than broker dealers.

Interval Fund Sales Charges and AUM

The story is even more extreme when you look at where interval funds assets are concentrated.

The largest interval funds are raising capital exclusively from institutional investors and RIAs. The three active Stone Ridge funds, which together account for 45% of interval fund net assets, do not have any sales charge. The two Versus Capital funds, which together account for 12% of net assets, also do not have any sales charge.

…

Interval Fund Repurchase Offers

Under the interval fund rule, closed end interval funds are required to offer to repurchase between 5% and 25% of shares at NAV at predetermined intervals(quarterly, semi-annually, or annually). Frequency of repurchase offers varies depending on the liquidity of the underlying assets, and target investor base. The SEC requires funds to provide  notice to shareholders between 21 and 42 days in advance of repurchase offer . Interval Funds also file N-23c-3 with the SEC within 3 days of sending shareholder notification of a tender offer. (see Rule N-23c-3 under the 1940 act)

In practice, most interval funds conduct a repurchase offer quarterly. Here is what the data says:

Need more details? Interval Fund Tracker’s Premium Data offering now has comprehensive analytics and competitive intelligence on interval funds.

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.

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