Interval funds are becoming an important piece of the investment landscape. They offer access to private equity, venture capital, and niche markets—without the decade-long commitment required by traditional funds.

Generally speaking, interval funds let you invest in assets that aren’t as easy to access, like private companies or real estate. These investments have the potential to earn more money than traditional stocks or bonds because investors are willing to wait longer to cash out—what’s known as the “illiquidity premium.” They also don’t always move up and down the same way stocks and bonds do

What Is an Interval Fund?

Interval Funds are a type of closed-end fund, meaning they raise a set amount of money from investors and do not continuously issue new shares. These funds pool investors’ capital to purchase a range of less liquid assets. While traditional closed-end funds raise money through an initial public offering and have shares that trade on a stock exchange—where prices fluctuate based on market demand and supply—interval funds operate differently. 

Unlike mutual funds, interval funds do not permit daily withdrawals; instead, they allow investors to redeem shares at predetermined intervals, typically quarterly or biannually. Standard closed-end funds do not continuously offer new shares to investors, but the structure of interval funds allows for more periodic investments in less liquid assets, such as private equity, real estate, or fine art, while still providing periodic liquidity.  

Types of Interval Funds

Interval funds come in a variety of structures, allowing investors to diversify across different types of alternative assets. According to Morningstar, the most common types include:

• Venture capital funds (like The Cashmere Fund): These funds provide financing for startups with high growth potential, typically in the earlier stages of growth.
• Private equity funds: These invest in non-public companies before they go public or get acquired, providing exposure to early-stage growth opportunities.
• Niche markets: Investors can gain access to alternative assets such as fine art, rare collectibles, or even wine, diversifying their portfolios beyond traditional investments. 

These options provide investors with opportunities to explore non-traditional markets that may offer unique returns compared to standard investment vehicles.

A Brief History of Interval Funds

Interval funds first emerged in the 1990s as a way for investors to access alternative assets without the rigid lockup periods of private equity or hedge funds, per Diamond Hill. Over the past few decades, they have gained popularity as institutions and high-net-worth individuals sought more flexible investment options. Among UHNWIs, approximately 6% of their wealth is allocated to venture capital and private equity combined.

Today, interval funds serve as a strategic tool for diversification for investors of all kinds, offering exposure to non-traditional markets while maintaining some liquidity. 

Why Are Interval Funds Gaining Popularity?

Several factors have contributed to the rising interest in interval funds. According to Fortune, these include:

• Diversification: Interval funds allow investors to access asset classes that were previously reserved for institutional investors, broadening investment opportunities.
• Liquidity: While not as liquid as mutual funds, periodic redemptions make these funds more accessible compared to private equity or venture capital funds.
• Regulatory clarity: Interval funds are fully registered with the SEC, ensuring transparency and reducing the risk of opaque investment structures.  

With market volatility and inflation concerns driving demand for alternative investments, interval funds provide a structured way for investors to diversify without the constraints of traditional private investment vehicles.

The Cashmere Fund: An Interval Fund in Action

One example of an interval fund in practice is The Cashmere Fund, which offers a unique approach compared to traditional venture capital funds. Unlike typical VC funds that may lock investors in for 10+ years, Cashmere provides biannual redemption windows, offering periodic access to liquidity. While long-term holding can help maximize returns, investors still may benefit from flexible redemption opportunities.

Most alternative investments are limited to Accredited Investors (earning $200K+ per year for two years or having a $1M+ net worth) or Qualified Investors (entities with $5M+ in investable assets). However, Cashmere’s interval fund structure is open to a wider swath of investors, breaking the exclusivity traditionally associated with venture capital. Unlike many alternative funds that rely on Regulation D or A exemptions, Cashmere is regulated under the SEC's Investment Company Act of 1940, which results in easier access to invest and transparency of financial results.

Considerations Before Investing in Interval Funds

While interval funds may provide exciting opportunities, investors should be aware of some key considerations:

• Limited liquidity: Although more flexible than private funds, interval funds have set redemption periods, which may not suit investors looking for immediate liquidity of their investment.
• Higher fees: Managing alternative assets can be resource-intensive (i.e. costly), leading to higher fees than traditional index funds or ETFs.
• Longer investment horizon: Many interval funds recommend holding investments for five to ten years to maximize returns, making them a better fit for patient investors.
• Complex structures: Interval funds can have unique investment strategies that require thorough due diligence before investing.

Understanding these nuances can help investors determine if interval funds align with their financial goals and risk tolerance.

Key Takeaways

Interval funds bridge the gap between traditional investment vehicles and alternative asset classes. Here are the main points to remember:

• They offer access to private equity, venture capital, and niche markets that were previously reserved for institutional investors.
• Their periodic redemption windows provide some liquidity, though they are not as liquid as mutual funds or stocks.
• They are fully regulated by the SEC, ensuring transparency and full disclosure of investment risks.
• Due to longer investment horizons and higher potential fee structures, investors should carefully evaluate their suitability before committing capital.

The Future of Interval Funds

As demand for alternative investments grows, interval funds are expected to become even more prominent. Their ability to offer diversified exposure while maintaining some liquidity makes them an appealing choice for investors seeking non-traditional assets. Whether you’re an experienced investor or new to alternative investments, interval funds provide a structured way to enter private markets with regulatory oversight and periodic access to liquidity.

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