Form N-2
Schedule TO and Amended Schedule TO or Form N-23c-3
Forms N-CSR, N-CSRS, N-PORT, N-CEN, N-PX, Fidelity Bond 17g-1
Asset Management Fee (1.5% to 2.5% of net assets standard)
Subordinated Income Incentive
Fee (20% or hurdle), though uncommon
No Capital Gains Fee unless all investors are “qualified clients”
Under Section 205(b)(2) of the Advisers Act and Rule 205-1, closed-end funds may charge a “fulcrum fee”
33% leverage ratio (300% asset coverage ratio)
Co-investment transactions with close and remote affiliates prohibited without SEC exemptive order
No minimum requirement
Notice Blue Sky filings to states, no substantive review
No subscription agreement or five-day waiting period required
Electronic order entry possible
Yes, with SEC exemptive order (routinely granted)
Must calculate NAV on a daily or weekly basis
Flexible – daily, monthly, quarterly
Most Tender Offer products calculate NAV monthly or quarterly
Must maintain liquid assets sufficient to meet repurchase offers during repurchase offer period
From the time an interval fund sends the shareholders notice of the repurchase offer until the repurchase pricing date, the fund must hold highly liquid securities equal in value to one hundred percent of the repurchase offer amount
Portfolio can be 100% illiquid
No liquidity restrictions even when the tender offer period is open
Required to pay redemption proceeds ‘promptly’
Defined in the Fund Prospectus (Fundamental Policy)
Mandatory share repurchase program conducted every 3, 6, or 12 months
5%-25% of shares outstanding each quarter
Tender offers under Rule 23c-3 under the 1940 Act (the “Interval Fund Rule”) – Form N-23c-3
Discretionary share redemption program conducted quarterly (Board discretion)
Limitation of 2.5% to 5% ofshares outstanding for prior calendar quarter
Tender offers under Rule 13e-4 under the Securities Exchange Act of 1934 – Schedule TO
Treated like an open-end fund, with registration fees based on net sales
Initial registration of shares offering amount; thereafter must register additional shares prior to sale (not automatically effective) and pay filings fees
Shareholders must receive tender notifications no less than 21 and no more than 42 days before each repurchase request deadline.
Unless withdrawn, the tender offer must remain open until the expiration of: (1) at least 20 business days from its commencement, and (2) at least 10 business days from the date that notice of an increase or decrease in the in the percentage of the class of securities being sought (e.g., above the soft-gate)
Pro rata application but Rule 23c-3 permits interval funds to purchase an additional number of tendered shares, not to exceed 2% of the fund’s outstanding shares to avoid having to apply the pro rata result.
If offers for repurchase exceed the amount of repurchased shares authorized, the fund can extend the offer or accept tendered interests on a pro rata basis.
Many advisers receive board approval to accept more than the published gate (this is called the “soft-gate”)
Shares are accepted on a pro rata basis, provided that the fund may accept (i) all shares from a holder owning less than 100 shares and tendering all of their shares, before pro-rating shares tendered by others; or (ii) by lot shares tendered by a holder tendering all of their shares who elects to have either ‘all or none’ or ‘at least a minimum amount or none’ accepted so long as the fund first accepts all shares from holders who did not make such election.
Disclosure and notification requirements of Rule 23c-3 do not permit notification by publication in a newspaper (as is permitted for tender offer funds), so an actual mailing to interval fund shareholders each quarter (or other period set) is necessary. The fund must send to each holder of shares subject to the repurchase offer a notification providing certain required information no less than 21 and no more than 42 days before each repurchase request deadline.
Notification to shareholders of tender offers may be conducted through notification in a national (i.e., The Wall Street Journal) and/or regional publication rather than direct notification mailings as required for
No fundamental restrictions (1933 Act registration)
Holdings may impact eligible investors
Common on retail mutual fund platforms
Typically designed for retail audience
No fundamental restrictions (1933 Act registration)
Holdings may impact eligible investors
Primarily distributed through alternative investment platforms, certain strategies may require sub-docs
Typically designed for HNW investors, often with the accredited or qualified standard
Underwriting compensation based on whether a fund has an upfront sales load, distribution fee, and contingent deferred sales load
Subject to FINRA 2341 which imposed limitation based on “gross new sales”
75% selling commission standard
75% distribution fee; 0.25% shareholder servicing fee
8% of gross offering proceeds limitation imposed by FINRA
Subject only to FINRA Rule 5110 (as of September 16, 2020 – Tender Funds no longer need to make a FINRA filing under Rule 5110 related to their underwriting arrangements)
Question | Why does the due diligence team ask for this information? | How to highlight your Competitive Edge |
Present your firms overview, including history, inception date and key members | Learn the origin of the company, who started the firm and why the firm was founded. Looking for evidence of industry and investment strategy management experience. | Express what makes the organization unique – your history, story and reason why you manage money. |
Outline your current ownership structure | To find interested parties that may influence accountability, company liquidity and may provide potential investment in the firm’s future growth. For example: private ownership, employee owned, public, corporation or LLC, LP. | Validate alignment of all interested parties that will continuously support the firm and the investment management goals.Key points: Decision making hierarchy Past growth and future growth opportunities Succession planning |
Provide the total number of employees and detailed descriptions of key personnel, including number of years of experience and average tenure for each professional in their respective roles | Investigate the organization’s supportive infrastructure and determine ability to sustain and manage long term growth. (Ratio of personnel to AUM, complexity of the strategy and client sales support may influence a due diligence team’s rating). | Key points: Total number of firm employees Total number of investment professionals (analyst / traders / portfolio managers) Sales, marketing and client service Administrative: legal, compliance, risk management and operations |
Are investment professionals compensation tied to performance of the investment strategy? | To learn the compensation structure allows the due diligence team to gain insight on the collaborative nature of the organization to drive consistent results. | Focus on competitive and performance driven environment to best demonstrate alignment with the shareholder. Provide insight to how compensation is determined and processed (i.e. options, equity, bonus, etc.) |
Provide firms personnel turnover over the past five years and rationale for the turnover | Determine the stability of the firm personnel and the consistent implementation of the firm’s core philosophy. For investment professionals, low turnover is a key factor in determining the validity of the historical track record and tends to demonstrate product continuity. | Proving team stability and continuity by demonstrating: Years of experience Number of professionals that contribute to the investment strategy Rationale for any turnover of research and investment management team Provide succession plans – cultivating and advancing talent |
View firms assets under management (AUM) for the past 5 years | Exhibit the scalability of the firm and the strategy to determine potential risk to the investment strategy implementation and sustainability of the business development opportunities. | Key items of consideration are product/firm capacity and liquidity constraints. Describe components of your firms AUM: Total firm By vehicle; LP, SMA, Funds Discretionary vs. Advisement If low assets or high turnover, describe the fluctuation and what is being done to minimize potentially large swings. |
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