Aug 20. 13:21
White Paper Summary: Foreside's Product Spotlight on Interval and Tender Offer Funds
Product Spotlight: Interval and Tender Offer Funds
Non-traditional closed-end interval and tender offer funds share aspects of private funds and open-end funds, providing a broader investor base with access to alternative and illiquid investment strategies.
Interval and tender offer funds are closed-end registered investment companies that continuously offer shares at net asset value ("NAV") to an unlimited number of investors. They aren't traded on secondary markets; investors seeking liquidity redeem their shares at NAV to the funds themselves. Interval funds repurchase shares at set intervals, while tender offer funds repurchase shares at their discretion.
Typically both types of funds are registered under both the Investment Company Act of 1940, as amended (the "40 Act") and the Securities Act of 1933, as amended (the "Securities Act").
Interval Fund Redemptions: Rule 23c-3
Rule 23c-3 lays out the framework for interval fund repurchase offers.
· Frequency: 3, 6, or 12 months, with discretionary repurchases no more than once every 2 years.
· Amount: 5% to 25% of outstanding shares.
· Pricing Date: The date that determines the NAV at repurchase, no later than 14 days after the repurchase request deadline.
· Repurchase Request Deadline: The date at which shareholders must submit requests to participate in repurchase events. Interval funds must notify shareholders of a repurchase event 21 to 42 days prior to this deadline.
· Repurchase Fees: No more than 2% of repurchase proceeds.
Interval funds must calculate NAV at least weekly, and daily for the 5 business days leading up to a repurchase request deadline. The difference in NAV from the purchase date to the repurchase date, less fees, determines an interval fund shareholder's realized gains or losses.
Tender Offer Fund Redemptions: Rule 13e-4
Rule 13e-4 gives tender offer funds much more flexibility on their repurchase terms, though it can limit liquidity for shareholders.
Tender offer funds commence a tender offer (repurchase offer) by delivering an Offer to Purchase to shareholders, which discloses what is being offered and why, the expiration date, approximate repurchase price, and any other stipulations. They then complete Schedule TO and file all documents related to the repurchase offer with the SEC.
Interval Funds vs. Tender Offer Funds
Launching Tender Offer and Interval Funds
Launching either of these funds is fairly unique relative to more common fund structures, and the fund service providers (such as the custodian, administrator and transfer agent) also play unique roles.