Tom Stabile and Greg Saitz of FundFire report, across a two-part series, that interval and tender offer funds are increasingly drawing attention for how they value and classify limited-liquidity credit holdings, an area advisors may scrutinize more closely amid this year’s wave of credit-fund redemptions and heightened investor focus on liquidity and redemption readiness. The analysis relied on SEC Form N-PORT filings and used XA Investments data to identify interval and tender offer funds for comparison.
Across ~23 million holdings in 65,500 N-PORT filings from 15,000+ funds (period-ends Nov. 2024–Jan. 2026), FundFire found that for jointly held assets where at least 10 funds disagreed on fair value level, interval and tender offer funds used Level 3 about 40% of the time over the past five quarters, versus under 10% for other filers (5.2% most recently)—roughly five times more likely to label the same assets as Level 3 when others chose Level 1 or 2.
Ben McCulloch, Managing Director and General Counsel at XA Investments, said advisors are unlikely to make fair value levels a central due diligence item, but will focus on what the designations imply for meeting redemption needs. “I don’t think they care about security fair value-leveling,” he said. “But what they do care about is liquidity – they’re trying to manage their investors’ expectations for liquidity purposes.” He added that fair value levels are not a “perfect metric” for a fund’s liquidity profile and that it can be “very challenging” to decide between Level 2 and Level 3 for some holdings.
The series attributes the divergence to differences in valuation policies, pricing sources, and how firms weigh observable inputs versus internal models. “It gets tricky – if observable inputs are the primary source and a model is a secondary source, then generally that would be a Level 2 security,” McCulloch said, adding that “when you go from firm to firm, there are different approaches to that analysis.” He also cited how some sponsors factor “market liquidity depth” (including position size) into whether a holding is treated as sellable at quoted levels or pushed into Level 3 and noted that observable pricing inputs for private credit are more available than five years ago.
At the same time, the reporting may reflect incentives and operational risk: McCulloch said these funds can face pressure to show more Level 3 exposure given how they’re marketed, furthermore stating, “If I put out a shareholder report that has a lot of Level 1 and Level 2 assets but not a lot at Level 3, it may create an issue.” While FundFire notes N-PORT misclassifications can also stem from errors, including clerical mistakes in complex, third-party filing processes.
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