May 31, 2023 | Interview by David Adler
Launching an interval fund is far from easy, and the list of challenges can
seem long and forbidding. At the same time, the opportunities are enormous.
Given the recent surge in demand for alternative investment strategies, there
has never been a more advantageous time to launch an interval fund. Consulting
firms, on a private-label basis, can offer asset managers custom product
design and strategic advice on various capital raising pathways.
To learn more, I spoke to leading interval fund expert Kimberly Flynn, CFA.
Kim has over 20 years of experience in product development exclusively focused
on registered closed-end funds ("CEFs"), including listed CEFs, interval funds
and tender offer funds. Kim leads the Alternative Investments team at
Chicago-based asset manager and private-label CEF provider XA Investments LLC
("XAI"). Kim's experience in launching (as well as managing, merging and
closing) CEFs led to the formation of XAI in 2016. Since then, XAI has
launched a propriety CEF and helped numerous clients launch their own funds.
XAI offers consulting services to help asset managers launch their own
proprietary funds and get to market quickly and effectively. XAI also partners
with firms that wish to serve as sub-adviser and partner to enter the interval
Q: How does a private-label partnership with XAI work, and what advantages
does it offer to an asset manager that is interested in launching an
A: XAI offers a turnkey, private-label CEF platform where we
develop different types of CEFs including interval funds, tender offer funds
and listed CEFs. We handle all activities related to the custom design,
product development and launch of unique and differentiated CEFs for our
clients. This includes all of the required regulatory elements such as the
registration filings and the requisite operational set-up to manage a 1940 Act
registered fund. We also coordinate the product build timetable, work with
legal counsel to oversee production of the fund prospectus, assist with
assessment and selection of fund service providers, provide setup and guidance
on operational matters including valuation policies, liquidity management and
portfolio management functions including leverage, building a custom website
for each fund, and product positioning and full marketing services offering to
ensure a successful launch. We can handle every single aspect of the interval
fund launch process through our experienced team of interval fund industry
On the XAI platform, we work with clients of all sizes and with a variety of
alternative strategies. We have clients who are boutique alternative
investment managers with small teams who are interested in accessing the
retail and private wealth markets and other clients are some of the world's
largest traditional asset managers who want to enter the interval fund
marketplace. We also work with RIAs who are seeking to launch their own
While our clients hire XAI for a variety of reasons, they all benefit from the
advice we provide to de-risk the launch of a new fund. Some of our clients
have full product management or product development teams in-house but are
bandwidth constrained with multiple high priority initiatives and struggle to
make time for a new interval fund launch. Other clients, especially
alternative investment managers, have streamlined organizations, and the
in-house business development team does not have staff or experience launching
interval funds. XAI aligns with our clients for success and we serve as an
extension of our client's investment and product teams. With our rich
experience working on many different CEF builds over the years, we are able to
transfer interval fund product and market knowledge to our clients during the
product development process. XAI works behind the scenes to make sure the
project manager at our client is recognized for the project success.
Q: Does XAI provide feedback on whether a prospective client's idea for an
interval fund is feasible or even viable?
A: Yes – we typically start each client engagement with a
detailed feasibility study which involves four to eight weeks of workshops
around the investment strategy and its fit in the interval fund structure. We
focus in on the economics of the interval fund and make sure that clients
understand what it takes to break-even and to scale a new fund. We also
analyze our client's firm capabilities and readiness as it relates to managing
a registered fund. We want our clients to be successful, and the feasibility
study helps our clients align thinking around the details of the proposed fund
prior to beginning the full-scale private-label fund build. We assist with
expediting internal decision making and providing additional context for such
decisions. Our clients often need to take the findings of the feasibility
study back to their internal constituents and work to seek approval to take
next steps on the project. The feasibility study helps provide the evidence to
support the market opportunity and specifically the product opportunity that
the firm intends to pursue.
Q: How does XAI guide a client that has already selected an investment
strategy and is committed to launching an interval fund?
A: We advise clients that have already chosen to move forward
with an interval fund on the optimal product structure given their strategy
and objectives. For example, many clients want to understand the benefits and
trade-offs with launching a fund in the interval vs tender offer fund
structure. With tender offer funds, the fund board has the ability to stop or
vary the amount or number of tenders which may be useful in volatile markets
for certain illiquid alternatives. We also know the history of the interval
fund marketplace and can analyze the competitive landscape to help identify
gaps in the market that need to be filled and ways to differentiate the new
Q: How long does it take to launch an interval fund?
A: For the average interval fund, it can take eight to twelve
months from start to finish to launch. Recently, both the SEC registration
process and the wait time for interval funds to be added to clearing firm
platforms have lengthened, making timetable management and sequencing
concurrent processes even more critical.
While speed to market is important for some clients who want a first mover
advantage, other clients are more concerned with avoiding missteps or are more
focused on medium-term milestones like reaching the $100mm or the $500mm AUM
mark. XAI is able to help clients achieve their various objectives. Our
interval fund platform creates efficiencies in the process that are not
otherwise possible. XAI clients achieve a successful fund launch by keeping
all bodies of work moving simultaneously. We help facilitate cross-functional
working group activities and make sure external service providers are aligned
for an on-time fund launch. Like all projects, an interval fund launch tends
to uncover numerous sticking points and unforeseen challenges along the way—we
focus on highlighting the common sticking points that come up in a fund launch
and work with constituents to find the right solution ahead of time.
Q: Why is a private-label partnership so valuable when launching interval
A: Interval funds are unique in that their N-2 filing or SEC
registration does not reflect their practical starting point; reaching $100
million in AUM is the de facto beginning of an interval fund's life.
However, raising $100 million from $0 can be incredibly difficult and requires
detailed sales and distribution planning or seed capital. XAI assists clients
with their go-to-market plan including sales, marketing, and national accounts
planning. In addition to the SEC registration process and distribution
planning, firms launching a new interval fund must also manage a fund board
review and approval process. XAI has experience managing these concurrent
workstreams and ensuring that nothing is overlooked.
Q: How can XAI help new/emerging managers or managers wanting to launch
their first CEF?
A: XAI handles complex investment strategies and enjoys
working with clients who are trying to do something that is new or different
(e.g., a new asset class or new fund structure). In launching interval funds,
much of the complexity of a fund launch lies below the surface. XAI dives deep
into problem solving and addressing issues that arise through our proprietary
interval fund product development process.
XAI can also open doors for fund sponsors when entering a new market. We
understand the challenges of launching new initiatives—after all, we're a fund
management firm too. Prior to launch, XAI works with its consulting clients on
strategies to raise seed capital or contribute a private fund to help scale a
new interval fund. XAI served as a consultant to Thornburg on the launch of
its debut listed CEF offering in July 2021 – the $640mm Thornburg Income
Builder Opportunities Fund (Nasdaq: TBLD). XAI also manages the $400mm XAI
Octagon Floating Rate & Alternative Income Term Trust (NYSE: XFLT) which
launched in September 2017. Thornburg and XAI were two of only three new
listed CEF sponsors to enter the market in the past eight years.
Q: Where have you seen innovation in the interval fund market
A: The Hamilton Lane interval fund recently filed for a
digital share class, introducing blockchain technology into the interval fund
space. XAI anticipates that blockchain technology can transform the
operational aspects of registered fund industry and expects the tokenization
of funds and the addition of blockchain-native share classes to become more
prevalent in the near future. A digital share class can help an interval fund
sponsor streamline the issuance process and reduce some inefficiencies and
expenses. More alternative asset managers are expected to commit to utilizing
such technology to broaden investor access to the private markets. XAI will be
working with industry participants and asset managers to help implement
blockchain technology across the interval fund marketplace.
Q: Are there any interval fund trends you expect will do particularly well
A: There is still plenty of room for product category
expansion in the sustainable investing space, where we've observed tremendous
growth in the last 10 years in the UK market. Sustainable investing themed
funds in the London-listed fund market have had success raising capital across
different asset classes including venture capital, private equity, private
credit, farmland and infrastructure. In the US interval fund market, these
areas of investment are all underrepresented. Infrastructure and real assets
make up a relatively small portion of the assets in the interval fund market.
In the US interval fund market today, we observe four sustainable focused or
impact-oriented funds, but we anticipate more to follow. The fund-of-funds
space will continue to grow as well as more asset allocators and institutional
investment consultants sub-advising and launching proprietary funds.
Another interesting trend is that of new types of funds sponsors entering the
interval fund market. We observe an increasing number of FinTech
direct-to-consumer platforms that have launched proprietary funds – many of
these funds are fund-of-fund strategies. We also note that RIAs with large
pools of discretionary assets under management have launched proprietary
interval funds. We help RIAs with product structuring and help these wealth
managers identify ways to expand interval fund distribution beyond their
initial client audience.
Q: Do you expect continued growth in the private-label interval fund
A: We feel this is just the beginning of the private-label
approach to launching interval funds. XAI is the only independent consulting
firm in the market today that can guide clients from start to finish through
the interval fund product development process and provides hands-on product
launch execution services. The XAI platform gives new issuers the highest
probability of success when launching their own proprietary funds. As more
firms begin working with us in the interval fund marketplace, awareness of
what we are able to do for our clients will increase. We are often approached
by asset managers that indicate they plan to launch an interval fund and we
help them evaluate capital raising pathways that might be best-suited to their
goals and preferences.
Q: What are the global opportunities in launching interval funds?
A: Demand for interval funds and similar semi-liquid
alternative fund structures is exploding globally, with a huge amount of
activity taking place in Europe. We feel managers should not limit their
launch and growth plans to the US, while other markets can be a better fit for
We have extensive consulting experience in the London market and deep
knowledge of local players, ranging from brokers to media to institutional
partners. Recently, we have advised prospective and current clients who are
considering launching interval funds in the United States on steps towards
also launching a London-listed fund in the United Kingdom or even to
contemplate the updated Luxembourg evergreen fund structure which shares
similarities with the interval fund.
Q: Any final thoughts?
A: Clients should not be deterred from launching an interval
fund, but they should be realistic. Having the right partner and launch
strategy is key. XAI can advise on the best structure for a particular
investment strategy, conduct a feasibility study and, ultimately, act as an
extension to the client's team throughout the fund build and launch. By
working with XAI, asset managers can accelerate both decision making and the
entire launch process.
About David Adler: David is an economic analyst and author.
His work focuses on illiquidity and behavioral economics. For XAI, David has
written several white papers, including "Invest Like the Pros: Using Liquidity
Premiums to Drive Portfolio Outcomes," "Overcoming the 'Liquidity Mismatch' in
Individual Investor Portfolios" and "Using Alternatives to Achieve Your
Retirement Goals." For the CFA Institute Research Foundation, David wrote "The
New Economics of Liquidity and Financial Frictions." David has an MA and BA in
economics from Columbia University. He serves as a Senior Advisor to XAI.
About Kimberly Flynn: Kim is a Managing Director at XAI with
a wide range of product structuring expertise. She is a partner in the firm
and responsible for all product and business development activities. Kim is a
frequent contributor to media and industry events on topics including interval
funds, alternative investments and London-listed investment companies. Kim has
an MBA degree from Harvard University and a BBA in Finance and Business
Economics, summa cum laude, from the University of Notre Dame. Kim earned the
CFA designation and is a member of the CFA Institute and CFA Society Chicago.
The information in this publication is provided as a summary of complicated
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Further, the information is not all-inclusive and should not be relied upon as
Illiquid investments are designed for long-term investors who can accept the
special risks associated with such investments. Interval and tender offer
closed-end funds are not intended to be used as trading vehicles. Unlike
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time or in the amount an investor desires. Listed closed-end funds frequently
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Diversification does not eliminate the risk of experiencing investment losses.
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