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.
Originally published October 30, 2017
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