Interval Funds

Apr 19. 22:09

The Top Five Advantages of Interval Funds

Photo by Kelly Sikkema


Alternative asset access is the interval fund’s raison d'être. Because of an interval fund’s unique structure, advisors can funnel money into investments that are difficult to handle for funds with higher turnover. Interval funds only need to have cash on hand a few times a year, so a greater proportion of capital can be devoted to securities with higher barriers to entry and exit.

These alternative assets include project debts, hedge funds, catastrophe bonds, real estate securities, and small business loans. Interval funds provide exposure without individual investors undertaking the cost of buying whole loans, properties, or physical assets. Mutual funds and ETFs can only invest 15% of their capital in these opportunities, while interval funds can invest up to 95%. In addition to higher yields, these alternatives provide a portfolio with diversification across a broad range of sectors, countries, and time scales. This helps a person’s wealth withstand inevitable dips in the market, and it gives exposure to growth opportunities that are inaccessible to other types of fund.


At the end of the day, the purpose of an investment is to make money. For interval funds, their profit advantage stems from their markedly higher yields.

Yield, either through appreciation of an asset or through dividends and interest, is the amount of extra money you can expect to make with an investment over a certain period of time. As mentioned above, interval funds have access to types of hard-to-reach, illiquid assets that other funds don’t. Because these assets are more complicated to invest in, they reward those willing to do so with higher interest rates on debt securities and generally higher appreciation over time. This is sometimes called the “liquidity premium.” In a time when low interest rates are driving down fixed-income yield, these extra few points can be very attractive to mid- and long-term investors.


For most fund types, when the market takes a dive, the fund’s value dives right alongside it. For investors seeking to stabilize their portfolios in turbulent times, this type of correlation is unappealing. Interval funds tend to have lower market correlation than other types of fund, positioning them as a valuable counterbalancing force in a portfolio. This low correlation can be traced to the stable values of the alternative assets in which interval funds tend to invest. The price of real assets and the yield from long-term debt securities doesn’t track directly with common indexes, so a person’s interval fund shares can provide a convenient buffer against the dips and spikes of the stock market.


In addition to their low market correlation, interval funds are appealing to stability-seeking investors because of their consistent pricing. Interval funds shares are bought and sold at net asset value, which is calculated daily. Shares can only be purchased from the fund, and they can only be sold back to the fund at a few set intervals throughout the year. Therefore, in times of market uncertainty, the value of an interval fund’s shares is stabilized in three ways:

· The lack of a secondary market for the shares keeps market expectations about the fund’s future performance from influencing the price at which the shares trade.

· Investors’ inability to quickly pull their money from the fund keeps its total assets (and thus its NAV) stable during times of low economic confidence.

· The periodic repurchase system and 25% share threshold for any given redemption encourages long-term investing strategies, reassuring fellow shareholders that the fund will be well-resourced in the future and building overall confidence.

Because of this, interval fund share price tends to hold to a steadier course than that of different funds with similar holdings.


The final key advantage of interval funds is the broad range of investors who can buy their shares. A brokerage account, along with the associated fees, is required to purchase shares of an ETF. Although some mutual funds can be bought directly from the manager, many require a brokerage account. Interval funds, in contrast, eliminate intermediaries by selling their shares directly to investors. Plus, most interval funds don’t require accreditation. Funds with access to the types of assets interval funds hold typically require their investors to have high income and net worth. However, interval funds break down this barrier by offering their shares to everyday investors with lower minimum buy-ins. This diversifies the source of the fund’s capital and gives more people access to interval funds’ other core advantages, helping grow both the fund and the personal wealth of its investors.

Next: Interval Fund Essentials: Buying Shares

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