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Delving into interval funds

IPA panelists take a closer look at one of the industry’s hottest products

2 min read


IPA Vision 2016


Interval funds, investments “that offer daily investment opportunities and limited redemptions at specific intervals,” are gaining popularity, giving investors access to various asset classes with increased transparency and liquidity. But these benefits aren’t without challenges.


Taking a closer look at these funds and how they fit into investors’ portfolios was the subject of the panel “In-depth Look at Interval Funds” moderated by Aaron Rosen, director of due diligence at Lucia Capital Group. Randy Agnew, alternative investment product strategy at Cetera Financial Group; Dr. Randy Anderson, president of Griffin Capital Asset Management Co.; Jacob Mohs, senior analyst at FactRight LLC; and Alan Feldman, CEO of Resource, participated in the wide-ranging discussion of this hot product structure.


One challenge is how to explain liquidity and making sure that investors understand that while these offer more liquid structures than other alternatives, they are still deemed to be a long-term investment in illiquid assets, Agnew said.


The term interval fund is “nothing but a wrapper,” said Anderson. “You can put anything into that structure. The most important thing is to look under the hood. You need good diligence and to understand how they will perform in different environments.”


Mohs echoed that saying the versatility has been “under utilized” and that the key for the industry will be putting asset allocation first. “There is a reason to add interval funds to your platform. It’s a versatile tool for many investor portfolios.”


Having an educated sales force is critical to the success of these products, Feldman said. Due diligence is also important, and understanding that to make money you’ll need to scale the product, making structure a differentiator.


Monitor the underlying portfolios on an on-going basis to ensure sponsors are following their strategies and understand how returns are generated, Mohs advised. While doing diligence can be a challenge due to the evolving nature of the product, the panel agreed that it’s an important part of making sure you’re offerings are compliant and a good fit for your investors.


Going forward, it’s likely that more sponsors will offer a variety of fund types and larger institutions will continue to enter the market.  As the cost to launch funds is high, the panel predicted consolidation on the sponsor side with larger firms offering more funds.