Donald J. Hutchinson

Managing Director, Institutional Advisory Services

Accessing Private Markets with Interval Funds

Interest in accessing private market assets continues to grow among institutional and high net worth investors. Often referred to as alternatives, private market assets are simply the ability to invest in equity, debt, and real assets (commodities and real estate) that are not readily traded and available on a publicly traded exchange. The allure of these assets is underpinned by the potential benefits for enhanced returns, lower volatility, and increased diversification.

Challenges for Small to Mid-sized Institutional Investors

Historically, small to mid-sized institutions have been under allocated to private markets. Drawbacks of this asset class, listed below, often make investing prohibitive for smaller institutions.


  • Lack of liquidity (10-year lock-ups) and lack of transparency.
  • Inability to achieve proper diversification with limited capital.
  • Limited access to high-quality managers given the wide dispersion of managers’ returns.
  • Higher management and incentive fees than traditional managers.
  • Increased operational burdens associated with partnerships, unrelated business income tax (UBIT) and capital calls.
  • Complex legal structures, historically offered via limited partnership structure.
  • The “blind pool” nature of primary offering structures.


In addition to these challenges, it can be difficult for institutions, large and small, to reach and meet their target allocation to private assets. As an example, it is estimated it can take up to five years to deploy a 10% allocation to private market assets for a $100 million portfolio that invests in a traditional limited partnership/capital call structure.


In response to these obstacles and to get exposure to a broad basket of private market assets in a timely manner, institutional investors are increasingly utilizing interval funds for all or a portion of their private market allocation. In fact, according to a survey conducted by Partners Group, around 40 percent of allocations to interval funds comes from institutional investors, which includes pension funds, endowments, sovereign wealth funds and family offices.1

What Are Interval Funds?

An interval fund is a type of investment vehicle legally classified as a closed-end fund and regulated under the Investment Company Act of 1940, the Securities Act of 1933, and the Securities Exchange Act of 1934.


Initially known as Evergreen Funds, they first made their appearance in 1993 in response to the SEC calling for a “hybrid” type of investment vehicle between open-end and closed-end mutual funds and by 2010 they were housing illiquid alternative investments.


Like open-end funds, interval funds can accept new investors on an ongoing basis with many accepting new investments daily, weekly, or monthly. Also similar is the requirement for frequent reporting and oversight by an independent board of directors. This allows information about the interval fund and its holdings to be transparent and readily available. Finally, investment income generated inside these funds is reported via Form 1099, which is less laborious than K-1 reporting typical for private partnerships. They are also pass-through vehicles, so the taxation of the investments is specific to the strategy or asset class of the fund’s portfolio investments.

Access for Investors

Interval funds are generally not listed on an exchange, so fund managers can either directly distribute the funds or they can be sold through financial intermediaries. Funds that do not strike a daily NAV require subscription documents to be executed prior to purchase. Further, if an interval fund’s shares are not registered under the Securities Act of 1933, they can only be offered to accredited investors.


Despite some limitations to a broader client base, interval funds offer relatively lower investment minimums when compared to other private market opportunities. Additionally, once purchased, the investors own shares of a commingled pool of investments, granting immediate exposure to the underlying fund holdings without the need for a fundraising process and gradual deployment into portfolio assets many times referred to as the “J-curve.”


Interval funds are considered illiquid or semi-liquid investment products because they offer limited opportunities for share redemption. Typically interval funds require a one-year lock up followed by a limited number of shares eligible for redemption offered in predetermined intervals of usually three, six, or 12-month periods. Depending upon the fund, the amount of redemptions offered could be between 5% and 25% of total fund assets. Shareholders must submit repurchase requests to sell a portion of their shares back to the fund.


It is important for investors to understand that depending on the percentage of outstanding shares made available and the number of redemption requests received by all fund shareholders, investors may have all, part, or none of their request fulfilled at the offer date. Conversely, shareholders are under no obligation to sell any of their shares during any redemption periods, making the holding period of the investment infinite.


A potential drawback to their redemption feature is what is known as a “cash drag” on performance. To accommodate the periodic redemption offer, managers often allocate a small portion of the fund’s assets to more liquid securities. These securities can take the form of exchange-traded funds, cash, cash equivalents, or mutual funds where lower returns are expected.

Types of Investment Strategies

Interval funds’ limited redemption feature allows them the flexibility to invest in illiquid or less liquid assets. In fact, they can hold up to 95% of their portfolio in illiquid assets, as opposed to only 15% for open-end funds. Given this ability, the underlying investments of these funds may be comprised of potentially higher-yielding, illiquid assets, including:


  • Private Credit
  • Private Equity
  • Real Estate
  • Distressed Debt
  • Infrastructure
  • Venture Capital


Most funds with an established track record are diversified broadly by vintage year, geography, strategy, and industry/sector. Strategies within the fund can be accessed either directly, via co-investments, or through secondaries which can help the economics of the fund and the return profile.

What Are the Costs & Other Risks Associated with Interval Funds?

Because of their active management and illiquid asset structure, interval funds may provide potential opportunities for higher returns than other fund types; however, it also makes them more expensive to operate compared to traditional mutual funds or exchange traded funds. Investors should be aware that the associated costs and fees impact net performance and be fully aware of all fees and terms associated with the investment vehicle and the strategy.


While interval funds’ management fees and operating expenses tend to be higher, there can be other fees associated with interval funds, which include early redemption fees or a “repurchase fee” from the sale proceeds. A nice feature is that interval funds typically do not charge incentive fees (also called carried interest) like other private funds.


When evaluating interval fund strategies, investors should note that there is a distinction between a fund’s distribution rate and its returns. The distribution rate for some funds will also include a return of principal, which should not be mistaken as income or capital gains from the fund.


Interval funds may be subject to the same risks associated with their underlying investments, such as volatility, business risk, credit risk, interest rate risk, and others. Investors should read the fund prospectus before making any investment decision.

A Final Thought

Structures and terms for accessing private market assets are becoming more investor friendly. With this evolution, private market asset classes are opening to new pools of investor capital. While increasing market participants and eligible capital draws concern of too much capital chasing a limited supply of private investment opportunities. We observe that at the current time it appears the growth of private capital opportunities remains robust.


With that said, we are mindful of this possibility and how that could affect performance of these asset classes in the future. We will continue to closely monitor this as part of our due diligence efforts. At Goelzer we always strive to follow a thoughtful, rigorous, and disciplined research process for the entirety of our clients’ portfolios, knowing this should help serve our clients well in the years to come.


1 Christian Wicklein, Private Equity International, April 2023,



DISCLAIMER: The information provided in this piece should not be considered as a recommendation to buy, sell or hold any particular security. This report includes candid statements and observations regarding investment strategies, individual securities, and economic and market conditions; however, there is no guarantee that these statements, opinions, or forecasts will prove to be correct. Actual results may differ materially from those we anticipate. The views and strategies described in the piece may not be suitable to all readers and are subject to change without notice. You should not place undue reliance on forward-looking statements, which are current as of the date of this report. The information is not intended to provide and should not be relied on for accounting, legal, and tax advice or investment recommendations. Investing in stocks involves risk, including loss of principal. Past performance is not a guarantee of future results.


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