In response to a recent executive order, the U.S. Department of the Treasury issued this month an official report that recommends the SEC explore ways to stimulate interest in interval funds, which would include funds using alternative strategies, among others. Treasury’s report, A Financial System That Creates Economic Opportunities – Capital Markets, notes the lack of mutual fund investment in smaller public companies, given mutual funds’ daily redemption and portfolio liquidity requirements. Treasury recognized that interval funds, however, are not subject to these requirements and are better-suited sources of capital for smaller companies with low trading volumes or private startups. Treasury noted that total interval fund assets are only at $12.1 billion, compared with $262 billion in other closed-end funds, and that there are only 34 interval funds currently in operation. Given these very small numbers, Treasury is asking the SEC to see how interest in interval funds could be increased and whether relaxing rules or regulations governing interval funds would help make interval funds more attractive as investment vehicles. Treasury appears to believe these investment products could be key future sources of capital for smaller companies.
Based on Treasury’s recommendation to the SEC, we believe the environment could become even more ripe for launching interval funds, including interval alts, which offer significant advantages to fund managers over mutual funds. They are also attractive to hedge fund managers/investors for the reasons discussed in the infographic here .
The full Treasury report can be found here.