Since the Investment Company Act of 1940, investment companies could generally be described as either open-end or closed-end. Open-end companies issue redeemable securities, meaning that the investor can sell shares at any time back to the investment company, who must pay the investor’s redemption within seven days. Open-end funds have to maintain a certain level of cash and liquid assets, limiting the fund’s investment options. Closed-end funds do not issue redeemable shares. With no restrictions on the amount of cash to maintain, they can pursue a less-liquid investment strategy, choosing investments that are higher on the risk/reward scale.
So, wouldn’t it be nice to have the best of both worlds? In 1993, Rule 23c-3 was adopted, which essentially paved the way for the introduction of interval funds. An interval fund allows for purchases at any time, like an open-end fund, but allows the fund to offer periodic repurchases (generally every three, six or twelve months) during which the shareholder can redeem some or all of their shares. The advantages are obvious: a limited level of liquidity for the investor and the ability for the portfolio manager to choose from a broader array of traditional and alternative investments.
Although interval funds are becoming more popular, there are not very many investment administrators that are willing and able to support them. Nottingham is a “boutique” administrator that specializes in creating solutions for innovative investment products, including interval funds.