What are interval funds?
Interval funds are a type of closed-end fund that were developed to bring some of the potential benefits of alternative investments to a broader set of investors. They don’t require investors to be Qualified Purchasers or Qualified Clients (although some platforms require them to be Accredited Investors), and investment minimums are generally lower than private funds.
Interval fund managers can invest in a wider variety of asset classes than most mutual funds and ETFs, including across public and private markets, regions, and asset classes. Instead of offering daily liquidity, they allow investors to potentially redeem their shares at regular intervals, usually quarterly or semi-annually.
Because redemptions occur only at scheduled intervals, interval fund managers can invest in assets that require longer holding periods, offering potentially higher yields associated with complexity or illiquidity premiums.
| ETFs | Mutual Funds | Listed Closed-End Funds | Listed REITs and BDCs | Interval Funds | Non-listed REITs and BDCs | Private Drawdown Fund | |
|---|---|---|---|---|---|---|---|
| Investor Type | Retail | Retail | Retail | Retail | Retail (though some firms may require investors Accredited) | Retail | Qualified Purchaser |
| Investment Minimums | None | Low | Low | Low | Low | Medium | High |
| Liquidity | Daily | Daily | Daily | Daily | Typically Quarterly or Semi-Annually | Varies | None |
| Pricing Frequency | Continuous | Daily | Daily | Daily | Daily | Typically Monthly or Quarterly | Quarterly |
| Capital Calls | No | No | No | No | No | No | Yes |
| Typical Offering | Continuous | Continuous | Initial Public Offering (IPO) or traded on secondary market | Initial Public Offering (IPO) or traded on secondary market | Continuous | Continuous | Direct |
| Term | Perpetual | Perpetual | Perpetual or term | Perpetual | Perpetual | Perpetual | Term |
Qualified purchaser (QP): $5mm or more in investable assets excluding primary residence
Qualified client (QC): $1.4 mm or more in assets with an RIA after initial investment (AUM test) OR $2.7mm household net worth excluding primary residence (net worth test)
Accredited investor (AI): $200k annual income (or $300k household) in each of last two years OR $1mm household net worth excluding primary residence
Retail investor Investors who do not meet the above thresholds
Source: PIMCO. For Illustrative Purposes Only.The information is summary in nature and is not intended to be all inclusive or complete. The views expressed are those of PIMCO based on information available to PIMCO and are subject to change without notice based on market and other conditions.
There is no guarantee that an investment in any strategy or product will achieve the investment objectives or that the desired results will be realized.
What are the potential benefits of interval funds?
Higher yield potential
Interval funds can typically invest in complex and less liquid assets, which may offer higher yield and return potential than traditional investments. These assets tend to carry a greater level of risk.
Diversification
Many interval funds can invest in non-traditional assets like private debt or real estate, which tend to be less correlated to public markets than traditional funds and may help mitigate volatility in a portfolio.
Access and operational simplicity
Compared to private funds, interval funds may offer lower investment minimums, simpler tax treatment, more frequent reporting, and are continuously offered (enabling eligible clients to purchase the fund daily at net asset value (NAV)).
How do interval fund fees compare to other investment vehicles?
Interval funds typically charge higher fees than traditional, open-ended mutual funds as they tend to invest in assets that require more diligence to source, underwrite, and manage. These assets may not be as heavily traded as stocks and bonds and may involve greater risk, requiring more analysis before investing.
However, interval fund fees tend to be lower than private funds, making them a lower-cost way to access certain strategies.
Fees vary across interval funds according to each fund’s prospectus, accounting for aspects such as repurchase, early repurchase, distribution, and service fees.
How does interval fund liquidity work?
Interval funds are considered an illiquid investment. Owners can request to redeem their shares only at set intervals, and total redemptions are capped for each interval, so investors may be limited in how much they can redeem. If the total number of redemption requests submitted exceeds the redemption limit, all investors will have their redemption requests proportionally reduced.
However, for investors who don’t need short-term liquidity for their entire portfolio, allocating a portion to interval funds can be an effective way to potentially increase an overall portfolio’s return profile.
Liquidity and returns
The fund’s lesser liquidity is what allows its managers to invest in longer-term or more complex assets, which may offer higher yield and return potential than traditional investments, in exchange for the added risk.
Compared to other alternative investment products like private credit, private equity, or direct investments in real estate, interval funds may seem more liquid given the potential to redeem shares at regular intervals. However, investors should consider them to be illiquid investments.
FLEXible Portfolios with PIMCO's Interval Funds
FAQs
How are interval funds different from traditional mutual funds and ETFs?
Unlike a traditional mutual fund or ETF, investors can only sell shares of an interval fund at set times. There are also differences in fees, returns, risks, and other factors, like their ability to invest in certain private assets.
Are there risks associated with interval funds?
All investments involve risk and may lose value. As an alternative investment, interval funds are more complex than traditional mutual funds or ETFs. For example, there is greater liquidity risk associated with interval funds, given investors’ ability to redeem shares, subject to limitations, only at set intervals.
What does illiquidity mean for a portfolio?
While interval funds are considered longer-term investments and are less liquid than many more traditional investment vehicles, they offer a range of redemption periods (from quarterly to yearly). The liquidity impact of interval funds on a portfolio will largely depend on the portfolio’s construction. For instance, a 60/40 equity/fixed income portfolio tends to have more liquidity than a portfolio focused on real estate or hard assets.
How do I invest in an interval fund?
Interval fund shares are typically purchased through an advisor, and access may depend on platform availability.
What types of assets do interval funds invest in?
Interval funds can invest in a broad range of asset classes, including equities, fixed income, real estate, private credit, private equity, venture capital, and more.
Who can invest in interval funds?
Interval funds are available to many investors, though they often have minimum investments that are higher than a typical mutual fund. Some individual interval funds may be restricted to Accredited Investors only.
