How it works
An interval fund is a closed-end fund that is continuously offered at net asset value, is not listed on an exchange, and has no secondary market in which you can sell your shares to somebody else. The only exit is the fund itself buying them back.
The structure obliges the fund to make repurchase offers at stated intervals — every three, six or twelve months, with quarterly the industry standard — for a stated percentage of the shares outstanding. Almost every fund picks 5%, because almost every fund would rather not have to find the cash for more. If requests exceed the offer, everyone is filled pro rata.
The reason the wrapper exists at all comes down to the redemption calendar. An open-end mutual fund has to honour redemptions every day, and a portfolio that can be asked for cash every day cannot be stuffed with things that take months to sell. An interval fund is not redeemable daily and is not bound that way. That is the whole trade: give up daily liquidity, gain the ability to put genuinely illiquid assets into a fund that a financial adviser can sell across a kitchen table with a registered-fund label attached.
A worked example, with invented round numbers. You hold $100,000 in a quarterly interval fund making the standard 5% offer. Credit news is bad, and requests arrive for 40% of the fund's shares. The offer is 5%, so every request is filled at one-eighth. You asked to leave entirely; you receive $12,500. Next quarter the queue re-forms — requests do not carry over, you have to submit again — and 5% is now 5% of a smaller fund. At that rate of demand, getting your money out takes something close to two years, during which the price you are being paid is whatever the manager says the loans are worth.
What people get wrong
A 5% quarterly repurchase is widely read as "I can get 20% a year out". You can, if you are the only one asking. The cap is on the fund, not on you, and it binds hardest at exactly the moment you want it not to. Liquidity in an interval fund is abundant when nobody wants it and rationed when everybody does, which is the same property as every other liquidity promise written against illiquid assets, just written down honestly in the prospectus.
The second thing people miss is that NAV is not a price. For a fund of private loans, the NAV is a — a valuation, produced with the involvement of the manager whose fee depends on it, for assets that did not trade. You are exiting at an estimate, and so is everyone who stays.
Interval funds also get confused with tender-offer funds, which look similar and are not. A tender-offer fund repurchases shares when the board decides to. An interval fund must repurchase on schedule. Being obliged to gate at 5% is genuinely better than not being obliged to offer anything at all.
Why it matters to this crash
ran out of institutional money to raise and turned to retail. It cannot do that through ordinary mutual funds, because the assets fail the liquidity test, so it does it through interval funds and non-traded . These wrappers are the pipe through which household savings reach five-to-seven-year floating-rate loans to companies that no bank would lend to unsecured.
The structure is honest about the gate and quiet about the consequence. When a credit cycle turns, the people who ask first are paid at the pre-deterioration mark, out of the fund's most saleable assets, and what remains for everyone else is a smaller fund holding a worse book. Nothing breaks. The rules are followed exactly. That is what makes it interesting to us rather than reassuring.
We have not sized the interval fund market in our own reporting, and we are not going to guess at it here.
What would make this dangerous
The useful signals are all disclosed, quarterly, in filings nobody reads.
- Proration. A large private-credit interval fund reporting repurchase requests in excess of its offer, and the fill ratio it applied. One quarter is a data point. Two consecutive quarters is a queue.
- The offer size falling. A fund that cuts the percentage of shares it offers to repurchase is telling you what it thinks about its own ability to sell assets.
- Borrowing to pay exits. Repurchases funded by drawing a credit facility rather than by cash flow, which converts a liquidity problem into a problem.
- Suspension or postponement. A fund that stops making its scheduled offer altogether has moved from gated to closed.
- The mark holding still while comparables do not. Listed BDCs trading at wide discounts to book while an unlisted interval fund holding similar loans reports a flat NAV is a gap that resolves in one direction, and it is not upward. Watch it alongside the rate in the same portfolio.