Orinda Alternative Mutual Fund Platform

Interval Funds Overview

Thanks to their unique structure, interval funds can blend together characteristics from open-end mutual funds, closed-end funds and hedge funds. By definition, an interval fund is a type of closed-end fund; however, unlike traditional closed-end funds, interval fund investors purchase and redeem share – within limits – directly from the sponsor. As a result, investors benefit from easier access to less liquid investments typically available only to a narrow audience through private hedge funds.

Most market participants intuitively understand the concept of an investment fund, whereby investors buy shares of the fund which represent an interest in a pool of assets. The share price is based on the net asset value (NAV) of the fund’s portfolio holdings. Each fund type adheres to its own standards which govern the mechanics, such as how shares are bought and sold, allowable portfolio holdings, and tax treatment.

Open-end and closed-end funds, for example, are differentiated by how each offers liquidity to shareholders. Open-end fund shareholders can redeem shares directly with the fund sponsor once each day at the calculated per-share NAV. To meet these direct, daily redemptions, the underlying portfolio investments must have virtually complete liquidity. On the other hand, shares of traditional closed-end fund trade on the secondary market via an exchange. Because the fund sponsor itself doesn’t face the pressure of meeting direct redemptions, the fund’s investment capital is permanent and the underlying portfolio holdings can be quite illiquid.

Under this bipolar system, neither open-end funds nor closed-end funds have provided an ideal structure for offering portfolios that have substantial liquidity but not complete liquidity. Enter the interval fund: an investment vehicle with unique redemption procedures enabling it to occupy the space between open-end and closed-end funds.

Please contact us if you would like additional information on Interval Funds.