Interval and Tender Offer Funds: What a Pitch Deck Won't Tell You
As Wall Street races to democratize private markets, investors need to understand what they're really getting - and giving up
The pitch: you (retail investor) can have the best of two worlds — alternative investments (private placement feature) with periodic liquidity (public markets feature).
Add in the benefit of reduced volatility (since these funds hold long-term, hard-to-value assets), and it's no wonder investors can’t get enough of them.
(*If you do nothing else today, read this article by Cliff Asness on volatility laundering, come back and tell me what you think, I’ll wait).
What are these wonders of modern finance?
Interval and tender offer funds are specialized investment vehicles that blend characteristics of open-end mutual funds and traditional closed-end funds. The shares don’t trade on the secondary market. Instead, the fund periodically offers to buy back a percentage of outstanding shares at net asset value (NAV).
To avoid confusion: the terms "interval" and "tender offer" refer solely to the redemption feature and have no relation to the underlying assets in the fund—which can include everything from private equity to real estate.
The chart below shows the breakdown of unlisted closed-end fund assets as of October 2023:
Who are the major players? You’ll recognize the names on this list:
And there is no stopping this train. According to FUSE Research, net assets in the interval and tender-offer market have increased by 25%, rising from $130.6 billion at the end of 2023 to $163.3 billion as of 3Q24.
Along with rising assets, the number of products entering the market has also increased, with a record 43 launches as of year-end 2024 (29 interval funds and 14 tender-offer funds).
Today, I’ll break down:
✓ How interval and tender funds work
✓ Benefits and risks to investors (including one most overlook)
✓ Side-by-side comparison of Interval Funds, Tender Offer Funds, and BDCs
✓ Key factors investors must evaluate before investing
✓ Additional resources