MutualFundWire.com: Watch For Interval Funds' Widening Lead Over Tender-Offer Funds

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Wednesday, August 23, 2023

Watch For Interval Funds' Widening Lead Over Tender-Offer Funds

The gap between interval funds and tender-offer funds could more than double within the next several years, according to the folks at a research shop that focuses on distributions and marketing issues for asset managers.

Thomas "Neil" Bathon
Fuse Research Network
Founder, Partner

Yesterday, the Fuse Research Network team revealed their predictions about growth in two types of SEC-registered fund structures that can be used for alternative assets and strategies. The Fuse researchers predict that interval funds' lead over tender-offer funds could more than double over the next three years.

Interval funds had $63.9 billion in AUM last year, up from $54.8 billion in 2021, according to the Fuse team. And interval funds' lead over tender-offer funds grew on both an absolute and relative basis, from $15 billion (37.7 percent) in 2021 to $20.5 billion (47.2 percent) in 2022.

Looking ahead, the Fuse team expects that gap to keep widening for at least several more years, thanks to an expected AUM growth rate of 16 percent for interval fund AUM versus 5 percent for tender-offer fund AUM. They predict a $28.4-billion (61.2 percent) gap this year, a $38.3-billion (77.8 percent) gap in 2024, a $49.8-billion (96.3 percent) gap in 2025, and a $63-billion (117.3 percent) gap in 2026 (which is as far ahead as the Fuse team's publicly shared predictions go). In 2026, the Fuse team expects interval funds to have $116.7 billion in AUM, while they expect tender-offer funds to have $53.7 billion.

"Interval funds have become the far more popular unlisted closed-end vehicle over tender-offer funds due to their more predictable liquidity," the Fuse team writes. "The popularity of both structures stems from investors' increased appetite for nontraditional and alternative assets. As SEC-registered products with periodic liquidity, unlisted closed-end funds offer a more advisor-friendly structure than true alternatives such as hedge funds."

"Over time, participation from more managers with '40 Act experience should draw a greater number of affluent investors into interval funds and similar products," the Fuse team adds, noting that Eaton Vance and Fidelity are prepping interval funds and that Calamos and First launched new ones this year.

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