Wildfires Impact Interval Funds : A 2019 Q1 Update

This post is your guide to the interval fund market's key 2019 Q1 metrics and what's been impacting them—including natural disasters.

AUM Growth

Total interval fund net assets equaled $27.3 billion as of the most recent public filings, up 27.1% compared to the prior year, but down 0.8% compared to the prior quarter. In late 2018 and early 2019, new fund launches were offset by stock market volatility, and redemptions at funds focused on reinsurance and insurance linked securities.

(An interactive version of this chart can be found in the original post here.)

In the most recent quarter, 34 active interval funds reported net asset increases, and 20 reported net asset declines. Additionally, 10 funds recently launched and have not yet filed their first financial statements. Click here for current AUM data on all 64 active interval funds. 

Fastest Growing Interval Funds

The following list shows the five fastest growing interval funds, based on net asset growth in the most recent reported quarter:

Across the industry, funds focused on credit and real estate have grown rapidly, both through increases in asset prices, and new capital raising.

On the other hand, hurricanes, typhoons, and wildfires have all caused losses in the reinsurance business, and redemption requests at reinsurance focused interval funds. In contrast to Stone Ridge Trust V (which focuses on consumer credit), Stone Ridge Trust II and Stone Ridge Trust III (which focus on reinsurance) both reported large declines in net assets. Additionally, equity market volatility also negatively impacted ACAP Strategic Fund, which follows a long/short equity strategy.

Fund Launch Pipeline

The SEC declared effective 4 new funds effective in 2019 Q1, bringing $1.7 billion in new shares to the market. Additionally, there are 20 interval funds pending SEC approval.

This tables shows funds launched in 2019 Q1:

These newly launched funds are yet to report asset numbers with the SEC, so they are not included in the total above. However, they are likely to be a significant source of growth in the sector. Notably, BlackRock Multi-Sector Opportunities Trust is a tender offer fund with over $400 million in assets, and BlackRock Multi-Sector Opportunities Trust II launched in late 2018.

Interval Fund Tracker recently published a post on the continued trend of interval fund and tender offer funds eclipsing non-traded REITs and BDCs as the preferred alternative fund structure.

Interval Fund NYSE Listing

RiverNorth Marketplace Lending Corporation announced plans to list on the NYSE in 2019Q2. Overall this is a positive development for the interval fund structure. Interval Fund Tracker has long advocated more interval funds to list on exchanges. According to RiverNorth:

The Board believes that listing the Fund and becoming an exchange-traded interval fund may increase shareholder liquidity and could reduce the Fund’s operating expenses over time.

The SEC’s original intention with creating the interval fund rule was to mitigate the tendency of traded closed end funds to trade at a discount. The performance of publicly traded interval funds has supported this. The liquidity and price transparency benefits investors, while the interval fund structure minimizes NAV discounts.

Key Takeaways

• Total interval fund net assets equaled $27.3 billion as of the most recent public filings, up 27.1% compared to the prior year, but down 0.8% compared to the prior quarter . Outflows were concentrated in a small group, and the majority of funds reported AUM growth.
• Losses and oversubscribed redemptions at reinsurance focused interval funds offset new fund launches in other sectors. Additionally late 2018 equity market volatility also impacted some funds.
• Funds focused on lending and real estate continue to grow rapidly, both through asset price increases, and new investors.
• BlackRock, Cliffwater, Lord Abbett, and One William Street all launched new funds in 2019Q1.
• RiverNorth announced plans to list its interval fund on the NYSE. This is a positive development for the interval fund space.

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