The Rise of Interval Funds and How Retail Investors Can Participate
The Rise of Interval Funds and How Retail Investors Can Participate
In recent years, interval funds have surged in popularity, becoming an increasingly important part of the alternative investment landscape.
These funds offer retail investors access to asset classes previously reserved for institutions—such as private credit, real estate, and infrastructure—while providing periodic liquidity and regulatory oversight.
If you’re a retail investor seeking diversification beyond traditional stocks and bonds, understanding interval funds can open the door to new opportunities.
In this post, we’ll cover what interval funds are, how they work, their benefits and risks, and how you can get started as an investor.
Table of Contents
- What Are Interval Funds?
- How Interval Funds Work
- Benefits of Interval Funds
- Risks and Considerations
- How to Invest in Interval Funds
What Are Interval Funds?
Interval funds are closed-end funds that offer to buy back a portion of their shares from investors at regular intervals, typically quarterly, semi-annually, or annually.
Unlike traditional open-end mutual funds, which allow daily redemptions, interval funds are designed to hold less liquid assets while offering investors periodic access to their capital.
They are registered under the Investment Company Act of 1940, meaning they come with regulatory protections, transparency, and reporting requirements.
This hybrid structure allows managers to pursue long-term strategies without the pressure of daily redemptions.
How Interval Funds Work
Interval funds raise capital by issuing shares to investors, which they use to invest in alternative assets like real estate, private loans, or infrastructure projects.
Every set period—say, once per quarter—the fund will offer to repurchase a certain percentage of shares, often around 5% to 25% of outstanding shares, at the current net asset value (NAV).
Because they are not traded on exchanges, investors must wait for these redemption windows to access liquidity.
This design gives fund managers the flexibility to invest in illiquid assets that often generate higher yields, while still offering investors a controlled way to exit.
Benefits of Interval Funds
Interval funds offer several compelling advantages for retail investors:
1. **Access to Alternatives:** They open the door to asset classes like private credit, real estate, hedge fund strategies, and infrastructure—areas traditionally limited to institutional or accredited investors.
2. **Diversification:** By incorporating non-correlated assets, interval funds can help smooth portfolio volatility and improve risk-adjusted returns.
3. **Enhanced Yield Potential:** Illiquid assets often offer a premium over public markets, which can translate into higher income for investors.
4. **Regulatory Oversight:** Because they’re registered under the Investment Company Act, they provide more transparency and regulatory protection than private funds.
Risks and Considerations
Despite their benefits, interval funds come with important risks:
- **Liquidity Constraints:** Investors can only redeem shares during specified windows, making them less flexible than mutual funds or ETFs.
- **Valuation Challenges:** Determining the NAV of illiquid assets can be complex and less precise than publicly traded securities.
- **Fee Structures:** Some interval funds carry higher management fees and expenses due to the complexity of the strategies employed.
- **Market Risk:** While they offer diversification, they are still subject to broader market, credit, and asset-class-specific risks.
It’s critical for investors to thoroughly research the fund’s strategy, holdings, and redemption policy before investing.
How to Invest in Interval Funds
Many interval funds are available through brokerage platforms, financial advisors, and direct from fund sponsors.
When evaluating options, consider:
- The fund’s investment strategy and target asset classes
- Redemption frequency and percentage
- Manager experience and track record
- Historical performance and risk metrics
Some popular interval funds include Blackstone’s Real Estate Income Trust (BREIT), the Griffin Institutional Access Real Estate Fund, and the Apollo Diversified Credit Fund.
Work with a financial advisor to ensure the fund aligns with your overall portfolio and liquidity needs.
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