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Interval Fund Sales Charges -Institutional Investors

Institutional Investors Driving Interval Fund Growth

April 1, 2018

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.

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Interval Fund Repurchase Offers

March 21, 2018

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:

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Growing Interval Funds , total Interval Fund Assets

Interval Fund Market: 2017Q4 Update

January 1, 2018

 

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

October 15, 2017

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

October 1, 2017

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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