Introduction
Asset management vehicles, especially those regulated under the Investment Company Act of 1940 (the 1940 Act), are frequently painted with a broad brush and described as having the same or virtually indistinguishable characteristics. For a long while, many fund vehicles, like interval funds and tender offer funds, were not popular, barely attracting any attention from mainstream asset managers. Open-end funds, especially mutual funds, and subsequently exchange traded funds, accounted for the majority of U.S. assets under management. Now, with the coalescence of increased interest in alternative assets, including private credit, and the desire to provide retail investors access to private markets through registered securities, these, as well as other fund alternatives, have become increasingly relevant. This makes it important to gain a better understanding of various permanent capital alternatives, which might be said to exist on a spectrum or continuum, with each having distinct features. Once these sometimes fine distinctions are highlighted it becomes possible to structure or match the fund type to the asset mix, the sponsor's desired compensation arrangements, the distribution channel and target audience. But first, a little background is useful.
Closed-end Funds
Closed-end funds raise a fixed amount of capital through an initial public offering and then list their shares on a national exchange. Investors in closed-end funds buy and sell shares in the secondary market, but the number of outstanding fund shares remains constant.
Closed-end funds are not required to redeem shares at net asset value (NAV), which means managers have greater flexibility to invest in illiquid assets. Closed end fund investors "redeem" their shares differently than open-end (mutual) fund investors. Unlike mutual fund shares, closed-end fund shares are not typically redeemable by the closed-end fund at NAV or otherwise. Resales of closed-end fund shares generally are made through the secondary markets, either on national securities exchanges for listed shares or over the counter. Due to market volatility, closed-end fund shares are often purchased at a significant discount from a closed-end fund's NAV. Because closed-end funds are not required to buy back shares from shareholders, closed-end fund managers do not have the concerns about redemptions experienced by mutual fund managers, and they do not have to manage their funds to account for possible redemptions.
Interval Funds
An interval fund is a closed-end fund that continuously offers shares at NAV and provides regular liquidity through scheduled repurchase offers (typically occurring every three, six, or twelve months). The fund is required to offer to repurchase a set percentage (5-25%) of the fund's total outstanding shares at each interval, but investors are not obligated to participate. Interval funds conduct repurchase offers pursuant to policies adopted by their boards in accordance with Rule 23c-3 promulgated under the Securities Exchange Act (the Exchange Act). The frequency, amount and timing of such repurchases are set pursuant to this rule. The repurchase is priced at the fund's NAV, not at a market price, which can be advantageous because the fund is not subject to market fluctuations during the redemption period. In order to carry out this repurchase offer, an interval fund is required to adopt a policy that is publicly reported in its annual report. Shareholders may hold out for a better price, but they may not exit the fund until the next designated interval.
An interval fund provides an opportunity for investors to access illiquid assets while maintaining some liquidity through periodic share repurchases. Interval funds may be a better vehicle to address investor liquidity needs than open-end funds, because they do not need to accommodate daily liquidity requests. Shareholders are required to give the fund advance notice of their redemptions. Periodic repurchases effectively reduce the spread between the market trading price of a fund's shares and the fund's NAV, which helps to facilitate additional capital raising following the fund's initial fundraising round.
Tender Offer Funds
A tender offer fund is another continuously offered closed-end fund registered under the 1940 Act. A tender offer fund conducts periodic tender offers, most often quarterly, at the discretion of a fund's board pursuant to Rule 13e-4 under the Exchange Act. Tender offer funds have flexibility to value their assets periodically (daily, weekly, or monthly). This discretion allows these funds to provide controlled liquidity to investors. Shares are typically repurchased at or near NAV, and the process allows managers to control liquidity and manage the fund's assets more effectively.
Tender offers provide more flexibility for fund managers in terms of frequency, amount and timing of share repurchases than interval funds, and these funds have no liquidity requirements. One common reason for commencing a tender offer presents itself when the fund's shares are trading at a significant discount to the fund's NAV. The fund can try to reduce the NAV discount by offering to buy back shares and allow investors to earn fair value returns on their shares. These purchases may improve the market price of the fund's shares. Rule 13e-4 of the Exchange Act sets forth the parameters for commencing, terminating, filing, disseminating and generally conducting such a tender offer. At tender offer commencement, the tender offer fund will notify shareholders of the repurchase offer, share the Schedule TO, deliver the Letter of Transmittal, and file all repurchase offer documents with the Securities and Exchange Commission (the SEC). Schedule TO is the tender offer statement of the fund and includes, typically by exhibit, the Offer to Purchase.
Generally, Section 205 of the Investment Advisers Act of 1940 (the Advisers Act) prohibits advisers from charging performance fees. Closed-end funds may charge performance fees if all shareholders of the fund are "qualified clients" under Rule 205-3 of the Advisers Act. Closed-end funds are also permitted to charge a fulcrum fee, which is a performance fee that adjusts up or down based on how the fund performs against a specific benchmark. When interval and tender offer funds follow a fund-of-funds strategy of investing assets in other privately offered investment vehicles, the underlying funds are permitted to charge performance fees.
Learn more about interval and tender offer funds at What's the Deal.
Business Development Companies (BDCs)
BDCs are closed-end investment companies regulated under the 1940 Act, designed to provide capital to small- and mid-sized U.S. companies. BDCs invest primarily in small- and middle-market companies in the United States. As a result of their special status under the 1940 Act, BDCs are exempt from many of the regulatory requirements imposed by the 1940 Act on traditional investment companies and generally benefit from pass through tax treatment (i.e., the BDC is not taxed, and income and expenses are passed through to the owners of the BDC). Given the limited access to, and availability of, financing from traditional bank lenders, BDCs have played an important role as a source of capital and liquidity for small- and mid-sized companies that otherwise may be unable to obtain financing or do so at attractive rates.
Section 2(a)(48) of the 1940 Act defines a BDC as a domestic closed-end company that operates for the purpose of making investments in the securities specified in Section 55(a) of the 1940 Act and that makes available significant managerial assistance to the issuers of those types of securities. Section 54(a) of the 1940 Act provides that a company may become a BDC by electing to be subject to Sections 55 through 65 of the 1940 Act. The 1940 Act requires that a BDC maintain at least 70% of its investments in eligible assets, before being permitted to invest in non-eligible assets. BDCs are subject to certain other ongoing requirements under the 1940 Act. For example, under Section 56(a) of the 1940 Act, the majority of directors of a BDC must be disinterested persons. Section 57 of the 1940 Act prohibits certain transactions between a BDC and its related persons, absent approval by the SEC or, in some cases, its board of directors. Rule 17j-1 under the 1940 Act requires the adoption of a written code of ethics applicable to fund personnel and outside advisers who are involved in a BDC's investment activities. BDCs are also required to implement compliance procedures under the 1940 Act, which must be approved by a majority of the BDC's board and must include appointment of a chief compliance officer. Section 31 of the 1940 Act sets forth the recordkeeping requirements for a BDC. The 1940 Act imposes a variety of requirements on BDCs. A fair number of these are focused on boards of directors; related party transactions; capital structure requirements; advisory agreements; fidelity bonds; and investment restrictions.
A company electing to be classified as a BDC must register a class of securities under Section 12 of the Exchange Act. Consequently, BDCs are subject to the same periodic reporting requirements as other reporting companies and must file with the SEC annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K, as well as proxy statements under Section 14(a) of the Exchange Act. BDCs also are subject to corporate governance requirements under both the Exchange Act and the 1940 Act.
Public BDCs raise capital by selling their securities to the public in offerings registered under the Securities Act of 1933 (the Securities Act), and list a class of their equity securities on a national securities exchange (e.g., the New York Stock Exchange). Other BDCs are privately held, having sold their securities to accredited investors in offerings exempt from registration under the Securities Act. Private BDCs are typically sponsored or formed by private equity firms or financial institutions that have the requisite preexisting relationships with their investors.
Additional materials about BDCs are available here.
Open-end Funds
Open-end funds continuously issue and redeem shares at NAV. Investors buy or sell shares directly from the fund at any time, and the fund's size fluctuates with investor activity. Open-end funds are subject to liquidity requirements, limiting their exposure to illiquid assets (historically capped at 15% of assets), which ensures daily liquidity for investors, but restricts access to certain alternative investments. Open-end funds carry the risk that high demand for redemptions will compel a fund to sell assets to cover that demand, hindering fund performance. These are drawbacks that controlled liquidity funds, such as tender offer funds, do not encounter.
Target Date Funds
A target date fund is a type of open-end fund that automatically adjusts its asset allocation over time, typically shifting from higher-risk assets (like equities) to historically more conservative investments (like bonds) as the target date (often retirement) approaches. These funds offer a "set-it-and-forget-it" approach for investors with specific time horizons. This is in large measure what makes them appealing for those planning for retirement.
Collective Investment Trusts
Collective investment trusts (CITs), or collective trust funds, are not registered funds; however, CITs often serve a similar purpose. A CIT is a pooled investment vehicle, the funds of which are managed pursuant to a specific investment strategy. A CIT may be maintained by a bank or trust company and regulated by a banking agency, which might be the Office of the Comptroller of the Currency or a state bank regulator. The bank acts as a fiduciary and holds legal title to the trust assets. CITs are not regulated by the SEC and are not subject to disclosure or reporting requirements. While the CIT vehicle is not new, dedicating a sleeve of a CIT to alternative assets is a relatively recent development.
Permanent Capital Vehicle Growth
In recent years, permanent capital vehicles have grown in line with the growth of the private markets, particularly the private credit market. The U.S. private credit market was estimated to approach $1.4 trillion by the end of 2025. Permanent capital vehicles are becoming popular as a means of providing exposure to illiquid assets, including private equity and private credit assets. By way of example, interval fund assets have grown from $6.5 billion in 2014 to $107.7 billion as of the first quarter of 2025. Tender offer funds have grown from $27.9 billion to $80.4 billion during this same period. Private equity and venture-focused strategies accounted for the majority of total assets, and fund of funds strategies accounted for the second largest percentage of total assets of tender offer funds. Private credit-focused funds represent the majority of interval funds, with real estate-focused funds accounting for the second most prevalent interval fund investment strategy. Assets under management at BDCs also have grown significantly—from $120 billion in 2020 to about $500 billion in 2025. Most of this recent BDC growth is attributable to evergreen, or non-traded, BDCs.
Several notable trends, all interrelated and reinforcing each other, that are likely to continue to accelerate permanent capital vehicle growth include the following:
The growing significance of private markets and private securities: The private markets have become increasingly important in recent years. This relates to all aspects of the private markets—from the market for the securities of privately held companies, to private equity, to private credit. A recent Prequin report forecasted that global alternative assets would reach $32 trillion in assets under management by 2030. This includes private equity, credit, venture capital, real estate, infrastructure, hedge funds and natural resources. According to the same report, private equity assets under management are projected to approach $11.8 trillion by 2030. It also bears mentioning that, with the advent and growth of continuation vehicles, private securities have an "extended" life and a newfound liquidity. Also, continuation funds are yet another factor contributing (along with evergreen semi-liquid vehicles) to the blurring of the demarcation between private markets and public markets.
Providing retail investors with access to alternative assets: Retail investors are seeking increased access to the private markets. They would like the high returns often associated with an investment in private assets. Some of the permanent capital alternatives mentioned above provide a vehicle that facilitates exposure to illiquid access along with some opportunity for liquidity. Registered funds, which are subject to the comprehensive regulatory framework of the 1940 Act in addition, in many instances, to ongoing Exchange Act reporting requirements, offer important investor protections, while still making private market returns accessible. There are additional permanent capital vehicles, including traded and non-traded REITs, which should be added to the array of alternatives. Regulatory reforms that promote enhanced retail access to alternative assets will, in turn, lead to increased interest in the types of semi-liquid fund alternatives that we describe.
Evergreen funds spring up: Evergreen vehicles, including perpetual interval funds, tender offer funds, and BDCs, continue to grow in number. Some of these are institutional only vehicles, but many are funds that are semi-liquid and popular with retail and high net worth investors. Evergreen private credit strategies have grown significantly; these include direct lending, special situations, opportunistic and distressed lending, and mezzanine loan strategies. A PitchBook report predicts that the number of global evergreen funds could increase from $2.7 trillion today to as much as $5.5 trillion in 2029.
Melding of vehicle types: Interest in permanent capital vehicles has led to innovation and to hybrid products, such as statutory REITs that provide important benefits to their sponsors while offering investors some liquidity, and interval fund BDCs. Continued growth and regulatory reforms are likely to be catalysts for more product innovation.
New entrants in the private credit and asset management markets: New participants are entering the market and sponsoring permanent capital funds, and traditional fund complexes are partnering with alternative capital market funds to sponsor evergreen or semi-liquid funds. The incentives are such that it is likely that many managers will want to approach new categories of investors by offering these products on their own or with partners that are experienced alternative capital providers. Here as well you might say that there is a blurring of lines between traditional fund providers and products and alternative capital products and providers. We do not discuss defined outcome strategies, which often rely on the use of derivatives based indices or the use of options and derivatives, that provide equity market exposure for retail investors and are further blurring the lines.
Insurance company participation in the market: Sponsor platforms have acquired insurance companies. Often, a part of their strategy includes using the insurance company's assets as a pool of permanent capital that can be allocated to private capital investments. Insurance companies that are not affiliated with private equity or private capital sponsors also have become frequent investors in permanent capital vehicles. Insurance companies have increasingly invested in BDCs or in other permanent capital vehicles, whether through sidecars or through other structures, and this too provides significant additional pools of capital, contributing to the sector's growth.
On the pages that follow, we provide an overview of each of the principal permanent capital vehicles and conclude with a discussion of the regulatory reforms that also are impacting this sector, as well as share a perspective on additional regulatory changes that may be on the horizon.
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