Displaying items by tag: liquidity

The rapid growth of open-end funds investing in illiquid assets—like real estate, private equity, and credit—has introduced both opportunity and fragility, particularly due to stale pricing risks that can lead to wealth transfers between investors. 

Research shows that these funds often experience artificially smooth and lagged returns, which can mislead investors about actual performance and risk, enabling NAV-timing strategies that exploit predictable price movements. Spencer Couts and colleagues developed a more advanced return unsmoothing method to correct for spurious autocorrelation and better measure fund risk and performance, especially in highly illiquid private credit funds. 

However, interval and tender-offer funds help manage these risks by limiting capital flows and allowing managers to avoid forced sales or purchases of illiquid assets.

Finsum: Pooling capital through regulated open-end structures with controlled liquidity offers a more stable way to invest in illiquid markets.

Once considered obscure and underutilized, interval funds are emerging as powerful tools for investors seeking access to private markets without sacrificing structure or transparency. 

Kimberly Flynn, President of XA Investments, has long believed in their potential, seeing them as a middle ground between illiquid alternatives and mainstream accessibility. With investor interest in non-traditional assets on the rise, these funds are experiencing a surge in growth, gaining attention for their ability to offer periodic liquidity while deploying capital efficiently. 

Unlike mutual funds, which must maintain daily liquidity, interval funds can hold private assets and still meet redemption requests through built-in buffers and structured liquidity schedules. The uptick in SEC filings, new entrants like KKR and Hamilton Lane, and record inflows suggest that momentum is accelerating, positioning interval funds as a cornerstone of the alternative investing landscape. 

Finsum: Interval funds are meeting a specific need right now, and investors willing to sacrifice a little liquidity might be able to get better returns. 

Closed-end funds (CEFs) can be valuable additions to a diversified portfolio, offering the potential for capital growth and income through both investment performance and regular distributions. 

Unlike open-end mutual funds, CEFs typically provide higher distribution rates, often paid monthly or quarterly, and allow reinvestment that may enhance long-term returns.  Their fixed-share structure after IPOs means managers aren’t forced to hold cash for redemptions, allowing for more efficient and fully invested portfolios. 

CEFs also give investors exposure to the illiquidity premium by enabling access to less liquid, potentially higher-yielding investments that open-end funds often avoid. 

Finsum: Many CEFs may use leverage to try to boost returns, though this adds risk and volatility.

JP Morgan Asset Management is gearing up to introduce its first private credit interval fund, aiming to expand its footprint in private credit. This newly registered credit markets fund, filed with the SEC, will be accessible to wealth market investors. 

The fund plans to maintain a diversified portfolio that includes loans, bonds, structured finance securities, and other credit-related investments. Interval funds, like this one, provide access to private market assets with periodic liquidity windows, balancing stability with limited redemption opportunities. 

To manage liquidity, a portion of assets will be allocated to short-term debt instruments, money market funds, and cash reserves. 

FINSUM: As investor demand for private credit grows, asset managers are increasingly tailoring products to individual investors seeking diversification.

Evergreen interval funds offer a hybrid structure that combines the benefits of private investments with enhanced liquidity and oversight. These funds provide scheduled repurchase options, allowing investors more control over allocations compared to private vehicles with long lock-up periods and capital calls. 

Eliminating capital calls also avoids the J-curve effect, giving investors flexibility in adjusting their exposure and rebalancing their portfolios. As SEC-regulated entities, interval funds offer heightened transparency and protection, making them attractive alternatives to private funds. 

Studies by Couts and Goncalves quantify the liquidity benefits of these funds, showing that investors value the improved flexibility, especially when interest rates are high. 

Finsum: While focused on private credit, these advantages extend logically to private equity, venture capital, real estate, and infrastructure investments.

Category: Interval Funds

Tags: interval funds, liquidity, alts