Exploring the Surge in Popularity of Interval Funds – Are We Witnessing a Boom?

If you’re hearing a lot of buzz around the term “interval fund,” you are not alone.

Interval funds are rapidly gaining traction in the investment world, grabbing the attention of both seasoned investors and investment managers. In March 2023, interval funds totaled $84 billion in net assets signifying a 10% increase from the previous year.

The term “interval fund” is used to describe a mutual fund-like investment product that is redeemable at certain time periods, as opposed to being redeemable on a continuous basis. Like mutual funds, interval funds are continuously offered investments that are registered with, and subject to periodic reporting and disclosure requirements promulgated by, the SEC. Many issuers of interval funds offer but do not guarantee issuer sponsored redemptions, giving the fund a certain amount of liquidity.                

Interval funds are different from mutual funds in that they are afforded more flexibility concerning their asset allocation, which is why they are quickly becoming a popular way for investors to gain exposure to alternative and private securities. When compared to traditional alts, interval funds typically offer two distinct advantages: greater transparency and reporting, and lower investment minimums and eligibility requirements. These features have proven to be popular with retail investors, who are developing a greater appetite for alternatives and private securities as a percentage of their investment portfolios.

In addition to providing an avenue for retail investors, interval funds offer a host of advantages for portfolio managers, who can continually raise funds and make purchases while controlling cash outflows through limited redemptions at predetermined intervals. This flexibility provides more stable daily cashflows and allows fund managers to tap into a broader investor base by catering to the ever-growing demand for alternative and private securities in the retail sector.

Selling interval funds also presents certain complexities for brokers and investors. While the sale of mutual funds has largely been standardized through a select number of large vendors, the purchase and sale of interval funds is more manual. Interval funds require more nuanced disclosures in their subscription documents and many of the systems that were built to handle mutual funds at scale are not able to handle the customized workflows required to sell interval funds, constraining access for investors.  

However, certain fintechs are creating platforms and offering automation tools that help brokers sell interval funds in a standardized manner and at scale. Specifically, brokers can integrate technical rails that can collect and manage both subscription and redemption orders, allow in-app customer acknowledgments and document signing and manage payment processing alike.  Alternatively, brokers can purchase or integrate with customizable technology solutions that automate the more nuanced process of offering and making purchases of these funds, from setting up data that investors need, tracking investor activity and reporting.  

As interval funds continue to grow in prominence and popularity among a wide array of market participants, an opportunity exists for forward-thinking brokers to use technology solutions that allow for streamlined and more widespread participation in interval funds.