Interval Fund Space Becomes More Crowded As It Expands

Interval fund AUM continues to grow. Total interval fund net assets equaled $21.2 billion as of the most recent public filings, up 58% compared to the prior year, and 7% compared to the prior quarter.

Interval fund AUM growth in recent months has been driven by increasing acceptance from institutional investors and fiduciary investment advisers. Most sales of new share classes have been without sales commission.

Fasting growing interval funds

Thirty-two active interval funds reported net asset growth in the most recent quarter. The ten fastest growing interval funds accounted for over 90% of the quarterly increase in net assets for the entire niche. The following list shows the ten fastest growing interval funds, based on net asset growth in the most recent reported quarter.

Catastrophe events in 2017, including Hurricanes Harvey, Irma and Maria, as well as the California wildfires have impacted the insurance linked securities sector. Consequently, asset growth at the Stone Ridge funds slowed down in late 2017, but demand from new investors kept them among the fastest growing funds. Pioneer ILS Inverval fund did experience modest outflows, and the most recent NAV is 8% below the prior quarter. Nonetheless, catastrophe bonds continue to be a popular asset class among institutional investors. Investment Manager Marco Pirondini, quoted in Barron’s recently, emphasized reinsurance as a source of income not correlated with the broader capital markets. The insurance linked securities sector accounts for 33% of total interval fund AUM.

Real estate strategies expanded rapidly in late 2017. Both of Versus Capital’s funds are rapidly expanding. Bluerock, which manages the Total Income+ Real Estate Fund, has experienced increased fundraising across its entire platform. Likewise, Griffin Institutional Access Real Estate Fund is among the fastest growing funds, and recently crossed the $2 billion mark. 

Pipeline of new interval funds

New fund registrations and launches continued at a robust pace in 2018Q1. This is the earliest leading indicator of future interval fund AUM growth.

New registrations

Four interval funds filed initial registration statements with the SEC in 2018Q1, each from experienced asset managers using the interval fund structure for the first time.

Cliffwater Direct Lending Fund will focus on directly originated loans, using a multi-manager approach to allocate among multiple subadvisers. Cliffwater LLC will serve as the adviser.  Cliffwater LLC is widely known for its research in the credit space.  It created the Cliffwater Direct Lending Index, and the Cliffwater BDC Index.

Flat Rock Opportunity Fund will primarily invest in equity and junior debt tranches of CLOs. It may also invest in senior secured loans. Flat Rock Global, LLC advises the fund. Robert Grunewald founded Flat Rock in 2017. He previously ran Business Development Corporation of America and has worked with several asset managers and specialty finance firms.  Flat Rock Global also advises Flat Rock Capital Corp, a newly launched non-traded BDC.

American Beacon Sound Point Enhanced Income Fund will invest in a variety of credit-related instruments. Targeted assets include corporate obligations and securitized and structured issues of varying maturities. American Beacon Advisers is the adviser, and Sound Point Capital Management LP is the sub-adviser. Sound Point has a total of $15.6 billion under management.  It also subadvises InPoint, a newly launched non-traded mortgage REIT that is raising capital in the independent broker dealer and RIA space.

Weiss Strategic Interval Fund will maintain both long and short positions in a variety of equity securities. Targeted exposure is 130% long/30% short. Weiss Multi-Strategy Advisers LLC is the adviser. Weiss Multi-Strategy Advisers has a total of $1.4 billion in assets under management.

See additional data on new registrations here. 

New funds declared effective

The SEC declared effective two interval fund registrations statements in 2018Q1. This brought over $3 billion in new shares for sale into the market.

Tortoise Tax-Advantaged Social Infrastructure Fund seeks to generate tax advantaged income by investing social infrastructure projects related to 501(c)(3) organizations, nonprofits and other entities. Tortoise Credit Strategies, LLC is the adviser to the fund. The adviser’s parent company, Tortoise Investments LLC, had $20.2 billion in AUM as of December 31, 2017.

Blackstone/GSO Floating Rate Enhanced Income Fund invests in floating rate loans, notes, and bonds. Its adviser, GSO / Blackstone Debt Funds Management LLC, is the leveraged finance arm of Blackstone Group LP. GSO’s total AUM account for $43 billion of the $385 billion managed by Blackstone and its affiliates. Blackstone’s interval fund was off to a fast fundraising start, although it has not yet released its first quarterly filing. Blackstone has increasingly made a push into the high net worth retail space, and retail capital accounted for 18% of its total AUM as of the most recent quarterly conference call. Blackstone’s entrance will likely be another driver for interval fund AUM.

Note: this was originally posted by the author on Interval Fund Tracker.