Interval Funds for Investment Advisors: A Smarter Vehicle for Illiquid Strategies

Interval funds have experienced rapid, record-setting growth, with assets reaching roughly $98–$115 billion by early 2025, driven by institutional and retail investor demand for more access to alternative investments not widely offered through open-ended funds. Often described as semi-liquid, these funds allow access to illiquid assets. Since 2018, assets in interval funds have grown nearly 300%.

Key Takeaways

• Interval funds provide managers with access to retail and institutional investors seeking alternative and illiquid investments without the restrictions faced by mutual funds.
• These funds offer numerous advantages, such as no limitations on illiquid investments, exemption from ERISA rules, and the ability to offer shares, providing flexibility continuously and expanded market access for investment advisors.
• While interval funds must meet certain regulatory and tax requirements, such as RIC status to avoid corporate-level taxation, they offer strategic opportunities for asset diversification and investor liquidity through periodic repurchase offers.

What Is an Interval Fund?

An interval fund is a closed-end investment company that is registered with the SEC under the Investment Company Act of 1940 (1940 Act).

As of mid-2025, there are approximately 122 to 157 active interval funds managing over $100 billion to $192 billion in total assets.

Key Characteristics of an Interval Funds Investment Advisors Should Know

• Portfolio make-up: No restriction on the amount of illiquid investments held;
• Investor eligibility: No investor eligibility requirements if the shares are registered under the Securities Act of 1933 (33 Act), otherwise participants are limited to accredited investors;
• Continuously offered: Interval funds can continuously offer shares to investors based upon the net asset value (NAV) of the fund.
• Pension Plans: Not subject to rules under the Employee Retirement Income Securities Act (ERISA) or Unrelated Business Taxable Income (UBTI) regulations;
• Investor liquidity: offers periodic repurchase of shares;
• Regulated Investment Company (RIC) Taxation: The ability to elect RIC status for tax and issue annual 1099s;
• Distribution channels: Available to be sold through a variety of platforms, unavailable to private funds.

A Deeper Dive into Each Interval Fund Consideration

Portfolio Flexibility: No Limits on Illiquid Investments

Private equity managers and other advisors managing more illiquid portfolios, such as private credit, have avoided the public arena as their investment strategies didn’t meet the requirements of an open-ended 40 Act fund. Open-ended funds, also known as mutual funds or exchange-traded funds, must limit their illiquid investments to 15% of their total assets. The SEC defines an “illiquid investment” as a security that cannot be sold or disposed of in the ordinary course of business within seven calendar days at approximately the value ascribed to it by the fund. A private equity fund, real estate, distressed debt, structured finance, and other funds focused on more illiquid securities would not meet the qualifications to be a mutual fund. However, in an interval fund, there is generally no limitation on the number of illiquid investments that can be held, making it a viable vehicle for private equity funds and other more illiquid strategies.

One drawback is that interval funds are required to calculate an NAV on a weekly basis. During the five days prior to the repurchase offer period (described below), the NAV must be calculated daily. This could be challenging and costly where funds hold a significant number of illiquid securities.

Investor Eligibility: Reaching Retail and Accredited Investors

For interval funds that elect to register their shares under the 33 Act, the shares can be sold to retail investors. This opens a whole new market to private fund managers, who previously were limited to offering interest in their funds to accredited investors. Some interval funds choose not to register under the 33 Act and are content with offering their shares to accredited investors only. If the fund can verify that all investors are qualified clients, the fund can charge a performance fee, similar to a private fund. This creates a “regulated hedge fund” as it allows for continuous subscriptions, has limited share repurchase offerings, management fees, and incentive fees assessed, and no restrictions on the type of investments purchased, yet the fund is registered with the SEC.

Continuous Share Offerings: Raising Capital Beyond a Single Close

Unlike traditional closed-end funds, which raise capital through a one-time initial public offering (IPO) or private equity funds, where investors commit capital during the initial investment period, interval funds will continuously offer shares at the NAV of the fund, typically on a monthly or quarterly basis. This helps lengthen the period for raising capital into perpetuity.

Pension Plan Access: Bypassing ERISA Restrictions with Interval Funds

Private funds limit ERISA and IRA investors to 25% of the fund’s assets in order to avoid the fund’s assets from being considered “plan assets” and subject to the restrictions under the ERISA rules. This can be frustrating for pension plans that are forced to limit their investments in certain private funds to circumvent being subject to the ERISA rules.

40 Act funds are exempt from the ERISA rules, so they are not limited to the amount of ERISA investments they can accept. Additionally, since private funds are typically pass-through entities for tax purposes, they can potentially generate UBTI, which is passed through to investors on Schedule K-1s. Pension plans are tax-exempt entities but are subject to taxation on UBTI. Due to 40 Act funds taking a corporate form and electing to be taxed as a RIC for tax purposes (see further discussion below), there is no pass-through of UBTI to investors.

When considering the above two facts coupled with the regulatory oversight from the SEC, it makes an interval fund a very attractive vehicle for pension plans seeking access to private equity or other illiquid type investments.

Investor Liquidity: How Periodic Repurchased Offers Work

Traditional closed-end funds have no mechanism to allow for investor redemptions from the fund. Since closed-end funds are listed on an exchange, investors have liquidity by selling their shares on an exchange. Shares of closed-end funds will not always trade at the NAV per share of the fund, so investors seeking to sell shares might have to sell at a discount to the NAV per share.

By contrast, an interval fund will make periodic offers to redeem shares from investors. To qualify as an interval fund, it will have set dates established during the year where the fund will offer the investors an opportunity to buy back 5%-to-25% of its outstanding shares. These offer periods can be quarterly, semi-annually, or annually. If investor requests exceed the total of the offering, the reoffered shares will be pro-rated over the investors requesting the redeemed shares. It’s possible in certain instances that investors may receive less than the amount they requested. Typically, an interval fund board will select to offer to repurchase 5% of the shares on a quarterly basis. A fund would need to obtain approval from the SEC if it sought to offer to repurchase shares more often than quarterly. The SEC Investor Advisory Committee has recently recommended amending Rule 23c-3 to allow interval funds to make monthly repurchase offers. Private equity and other strategies involving highly illiquid investments may opt to allow only annual repurchase offers.

Tender Offer Fund

A fund that is slightly different than an interval fund is the “tender offer fund” or “discretionary repurchase offer fund.” The tender offer fund has many of the same features as an interval fund, with the exception of how shares are repurchased. Under a tender offer fund, there are no specified repurchase dates; instead, a tender offer fund can offer tender shares to be repurchased at any date determined by the board. These offers can be as frequent as monthly or not at all.

Advisors can decide which vehicle will function better with their investment strategy.

RIC Tax Election: How Interval Funds Avoid Corporate-Level Taxation

One of the big advantages of 40 Act funds over private funds is the ability to elect RIC status under Subchapter M of the Internal Revenue Code. Under the RIC rules, a fund will avoid corporate taxation provided they comply with certain requirements. A few of the key provisions are below:

• Meets a quarterly asset diversification requirement. The fund must hold at least 50% of the fair value of its total assets represented by items such as cash, US Government securities, other RICs, and other securities. Securities by a single issuer are limited to 5% of the fund’s total assets in order to count as a “good asset” for purposes of the test. The fund cannot have investments from a single issue that exceeds 25% of the fund’s total assets.
• Meets an annual 90% gross income test. Funds must generate at least 90% of their gross income from sources such as dividends, interest, gains from sales of stocks, options, forward contracts, etc. Examples of sources of income that do not qualify, also known as “bad income,” would be income from commodities, real estate, and fees for services.
• Must distribute at least 90% of its taxable income annually.

For interval funds investing in private equity investments, the asset diversification test could pose challenges unless the fund can sufficiently diversify its portfolio.

Distribution Channels: Selling Interval Funds Beyond Private Placements

Unlike private funds, which are limited to selling shares/interests, an interval fund will sell its shares through various distribution channels. Under the 1933 Act, interval fund shares can be sold to the public through a third-party distributor, including third-party distributors, broker-dealers, and financial advisors, who typically have a large sales force to sell shares directly to the public or to investment advisors for their clients. Since third-party distributors are unaffiliated with the advisor, they are unbiased in their sales efforts. Advisors to interval funds should be prepared to work with the distributor, as the strategies incorporated by interval funds tend to be more complex than those of mutual funds. Clarity is needed to properly explain the product to potential investors.

A Side-by-Side Comparison of Interval Funds, Mutual Funds, and Private Funds

Going Forward with an Interval Fund?

For private equity and credit fund managers looking to access the retail market or expand their exposure to retirement plans, an interval fund could be the perfect vehicle to bring their investment strategy to market.

EisnerAmper provides strategic guidance across fund types to help investors navigate complex financial and compliance regulations confidently. For more information, contact our team below.