Interval Funds: A Primer for Financial Advisors

Interval funds are not exchange-traded, but are offered continuously, similar to a mutual fund. These funds, however, only offer repurchases of shares (similar to a redemption) at regular, predetermined intervals and up to a certain percentage of the fund's outstanding shares, unlike mutual funds or ETFs, where investors can sell shares daily. If repurchase requests exceed the percentage of share repurchase offers, investors' repurchase requests will be prorated.

The fund limits repurchase because it tends to hold less-liquid private market investments, such as private direct lending, asset-based finance, real estate, infrastructure, or private equity. These types of investments take on more investment risk and can require longer holding periods for clients to benefit from potentially higher expected returns of these less-liquid opportunities.

Similarities and differences between mutual funds and interval funds

Interval funds combine features of public and private fund structures. Similarities to mutual funds include:

◆Priced with a daily net asset value (NAV)
◆Continuously offered
◆Can be purchased by advisors on broker-dealer platforms
◆Are ‘40 Act Funds
◆Investors receive IRS 1099 form at tax time

But there are also distinct differences that set interval funds apart. Those include:

◆Periodic liquidity, either quarterly, semiannually, or annually
◆Formal redemption process with a deadline to respond to repurchase offers, usually 30 days
◆Portfolio gates may be imposed if repurchase requests exceed a predetermined threshold, leading to proration
◆Higher management fees and expenses

Why the time is right to learn about interval funds 

Interval funds were first introduced in 1993. In 2017, however, investment managers and investors started to embrace them to access the growing popularity of alternative investments. Asset managers and alternative investment managers have created innovative strategies, allowing broader adoption of these funds.

Some of the newest interval funds include options for fixed-income investors. A Capital Group KKR Core Plus+ strategy blends public fixed-income and private credit. It prioritizes sustainably enhanced income beyond that of core and core-plus bonds while emphasizing risk mitigation and diversification across asset classes.

A Capital Group KKR Multi-Sector+ fixed-income strategy also combines public fixed income and private credit. This strategy seeks higher income than what may be achievable through traditional public fixed-income multi-sector funds.

These types of interval funds invest in approximately 60% public credit and 40% private credit assets, with the private holdings focused on corporate direct lending and asset-based finance.

Looking ahead 

Given the growth in interval funds, now may be the time for financial professionals to consider learning more about these unique funds, their benefits, risks, and how they could be used in their investors’ portfolios to pursue differentiated outcomes.

The funds may not be suitable for all investors, but for those with longer time horizons and higher risk tolerance, interval funds may be a bridge between familiar fund structures and new opportunities.

To learn more about how private market investments are offering more opportunities for financial professionals and investors, visit Capital Group’s Public-Private+ Solutions website: capitalgroup.com/plus

Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value. 

Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the interval fund prospectuses, which can be obtained from a financial professional and should be read carefully before investing. 

_{All Capital Group trademarks mentioned are owned by The Capital Group Companies, Inc., an affiliated company or fund. All other company and product names mentioned are the property of their respective companies.}

_{Capital Group and Kohlberg Kravis Roberts & Co. L.P. (“KKR”) are not affiliated. The two firms maintain an exclusive partnership to deliver public-private investment solutions to investors.}

_{The funds are interval funds. Repurchase Risk: Each fund currently offers quarterly repurchases of up to 10% of its outstanding shares, which may limit shareholders' ability to liquidate their investments when and in the amounts desired; Investment Risk: Strategies are not guaranteed to meet objectives and are subject to loss. Past performance is not indicative of future results; Credit and Liquidity Risk: Each fund invests in private illiquid credit securities, and may also generally invest substantially in high-yield, lower-rated securities and structured products, all of which carry higher credit and liquidity risks; Interest Rate and Inflation Risk: Investments may fluctuate in response to changes in interest rates and real interest rates; Derivatives Risk: The use of derivatives involves various risks; Foreign Investment Risk: Investing outside the U.S. involves risks such as currency fluctuations and price volatility; Non-Diversified Fund Risk: Each fund can invest a larger percentage of assets in fewer issuers, increasing the impact of poor results from a single issuer.}

_{Capital Client Group, Inc.}

_{This content, developed by Capital Group, home of American Funds, should not be used as a primary basis for investment decisions and is not intended to serve as impartial investment or fiduciary advice.}

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