Registered ‘40 Act interval and tender offer funds have emerged as a promising avenue for investors seeking exposure to private credit. These funds, characterized by their interval structure and regulatory framework under the Investment Company Act of 1940, offer unique advantages and opportunities in the realm of alternative investments. While the terms interval and tender offer fund are used interchangeably, there are some modest differences. Interval funds have more flexibility in the process of selling shares, while tender offer funds have greater flexibility in the process of buying shares back. In this blog, we delve into the growth opportunities of these hybrid structures and discuss key operational requirements associated with launching, particularly in the realm of private credit.
Growth Opportunities in Private Credit Interval & Tender Funds: Private credit has gained substantial traction among investors seeking diversification, enhanced yields and downside protection in their portfolios. According to data from Preqin, private credit fundraising reached a record high of $112 billion in 2023, representing a substantial increase from $79 billion in 2019. Hybrid fund structures—interval and tender offer funds—provide access to this burgeoning asset class while offering liquidity features typically associated with traditional mutual funds. This combination has fueled the growth of private credit interval/tender offer funds, attracting both institutional and retail investors keen on tapping into the potential of non-traditional fixed-income instruments. According to Interval Fund Tracker, there are over 60 active credit interval funds with a combined AUM approaching $40 billion. Direct lending, CLO, and other asset-backed securities and sovereign debt top the list as the most popular investment strategies launched within private credit.
Operational Needs of Launching Interval & Tender Offer Funds: Launching an interval or tender fund entails meticulous attention to operational intricacies, spanning legal, regulatory, compliance and administrative aspects. Engaging experienced legal counsel to navigate the regulatory framework and ensure compliance with SEC regulations is essential. Additionally, selecting a proficient fund administrator capable of handling complex fund structures, NAV calculations and shareholder servicing is critical. Operational due diligence extends to custodial arrangements, transfer agency services and risk management frameworks, all integral to the seamless functioning of the fund.
Managers often face challenges in standing out within a highly competitive private credit market. To effectively navigate its complexities, opting for advanced technology and robust data infrastructure is paramount. It's essential to select a provider capable of supporting the entire enterprise, spanning from front to middle to back-office functions, while also offering extensive reporting capabilities and industry expertise.
As allocations to private credit expand, registered ‘40 Act interval funds present a compelling opportunity for alternative fixed-income managers seeking to expand the pie of eligible investors. As the demand for non-traditional sources of yield continues to rise, the role of interval funds in democratizing access to private credit investments is poised to expand. However, success in this space hinges on a strategic approach to asset raising and diligent attention to operational necessities from inception to ongoing management. By embracing these principles, fund sponsors can navigate the complexities of launching interval funds and capitalize on the growing appetite for alternative investments within retail private wealth client portfolios.
SS&C is the largest fund administrator globally, with over $3 trillion in assets under administration, across 2,700+ fund entities. SS&C supports the ‘40 Act market with a unique solution to effectively service registered private credit funds. Our relationships throughout the private markets enable us to effectively retrieve valuation material internally, and strike NAV. This eliminates the advisor’s involvement in the valuation process and streamlines the fund accounting process entirely.
Check out our "Navigating Interval Funds" whitepaper to learn more.
