Selling and distributing closed-end interval funds


Friday, September 6, 2019 | By James J. Curry, AVP, Senior Key Account Consultant

Selling and distributing closed-end interval funds

Selling and distributing closed-end interval funds is an ever-changing landscape for product sponsors. There are many nuances with regard to how interval fund products are marketed and sold at the various platforms and intermediaries. Below are some considerations:

Established distribution plan

Product sponsors looking to launch interval funds should have a well-defined distribution strategy and a realistic time frame for gathering assets. Successful interval fund product sponsors typically have an existing proprietary sales force with several national account managers, or have contracted with a well-established third-party marketing firm with experience selling to registered investment advisors (RIAs) and large family offices.

Advisor demand required

Advisor demand is the most critical component to having your fund added to RIA platforms such as Fidelity, Charles Schwab, Pershing and TD Ameritrade. Having sizeable day-one demand with advisors at these firms—which also have influence and significant assets under management—will greatly improve your ability to have your fund made available for sale. Product sponsors who do not have advisor demand will not be able to access the larger RIA platforms. For access to large wirehouses such as Morgan Stanley or UBS, assets of the existing interval fund will need to be greater than $150 million before they will entertain adding your fund to their platform.

How long to get onto the platforms?

The time frame to onboard to the various platforms will vary, but generally can take 6 to 8 weeks or more depending on the platform. Careful consideration should be given to these time frames when budgeting and forecasting, as there are no short cuts to the onboarding process.

Cost of interval fund distribution at platforms

Typically there are upfront and ongoing costs associated with onboarding to the large RIA platforms. Upfront setup fees can be upwards of $25,000, and ongoing fees will vary by platform and share class. For example, an Institutional Class product will generally pay 10 to 15 bps on assets under management while a Class A Fund with a 25 bps trail payment will generally pay 40 to 45 bps on assets.

Treated as mutual funds and not alternative funds

One of the benefits of the current interval fund distribution landscape is that interval funds with daily pricing and quarterly redemptions are traded on mutual fund platforms and not alternative investment platforms. This allows for automated trading via NSCC and removes the requirements for forms or manual processes. Assuming your fund is available on the RIA platforms, an advisor wishing to buy your fund simply needs to submit a purchase order on their internal sales system as they would for any other mutual fund product. This will broaden the distribution availability of your product to more than just individual advisors and investors. Unfortunately, this is not the case for tender offer products without daily pricing, which are in most cases treated as an alternative product.

For more information please contact Robert Darmanin at Darmanin@dstsystems.com



Alternative Investments, Asset Management