What Are Non-Listed CEFs?

In the U.S. market, the non-listed closed-end fund structures known as interval funds and tender offer funds provide intermittent liquidity while offering a more appropriate wrapper for a large swath of alternative strategies. Both types of non-listed CEFs may invest in private and public assets.1 Both typically provide shareholders quarterly tender offers at NAV, in contrast to listed CEFs where liquidity comes from the ability to sell shares on the exchange at market price. With quarterly tenders, liquidity is typically capped at 5%. If a tender is oversubscribed, the fund generally will repurchase a pro rata portion of shares tendered by each shareholder, resulting in shareholders receiving less than the amount they tendered.

Once considered a niche product, non-listed CEFs are gaining popularity. According to DST Systems, AUM in interval CEFs was less than $8 billion five years ago, while today it stands at close to $30 billion.2 Moreover, the number of alternative interval and tender offer fund launches has increased the past few years as advisors search for strategies that offer low correlation and differentiated risk/return benefits.

 

Interval Funds: Net Assets, New Funds & Closures

Interval Funds

Source: CEF Advisors

 

Risks
The information in this article is provided as a summary of complicated topics and does not constitute legal, tax, investment or other professional advice on any subject matter. Further, the information is not all-inclusive and should not be relied upon as such. CEFs frequently trade at a discount of the fund’s net asset value (NAV). An investment in CEFs involves risks, including loss of principal. Past performance is not necessarily indicative of future results. Diversification does not eliminate the risk of experiencing investment losses. You should not use this publication as a substitute for your own judgment, and you should consult professional advisors before making any investment decisions. This   information does not constitute a solicitation of an offer to sell and buy any specific security offering. such an offering is made by the applicable prospectus only. A prospectus should be read carefully by an investor before investing. Investors are advised to consider investment objectives, risks, charges and expenses carefully before investing. Financial advisors should determine if the risks associated with an investment are consistent with their client’s investment objectives.

1Non-listed CEFs may have periodic inflows and may provide liquidity on a monthly or quarterly basis and therefore may have a cash drag, may experience performance dilution and may not be able to protect their portfolios.

2DST Systems. “Are You Exploring New Product Structures? Launching innovative strategies with interval funds. July 2017