We often receive questions from financial advisors about interval fund liquidity. Perhaps you’ve found a fund with a top notch sponsor, and a strategy that fits perfectly in your client’s portfolio, but have concerns about how easy it is to exit. Understanding the nuances of interval fund liquidity will help you make use of this […]
Interval Fund Rule
Interval funds may seem like a new concept, but they were originally created as a result of a SEC recommendations in its landmark 1992 study : “Protecting Investors: A Half Century of Investment Company Regulation.” This study concluded that the rigid delineation between “open end” funds, providing daily liquidity, and “closed end funds” , which do not offer daily liquidity, limited the ability of sponsors to offer innovative investment products to investors:
The Division has concluded it would be appropriate to provide the opportunity for investment companies to chart new territory between the two extremes of the open-end and closed-end forms, consistent with investor protection. >
As a result of this recommendation, the Rule 23c-3 under the 1940 Act, known as interval fund rule was adopted in 1993. 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). The Fund is required to provide advanced 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.