The Rise of Interval Funds: An Alternative Investment Option for Individual Investors

Interval funds have seen a significant surge in assets under management growth, with a staggering 276 percent increase since 2007, according to Interval Fund Tracker. This growth has propelled the total assets to over $75 billion by the end of 2023. Despite this impressive growth, a recent Morningstar report highlighted that many investors and financial professionals still lack knowledge about interval funds.

Interval funds offer individual investors access to less liquid alternative investments, such as real estate, private credit, and private equity, that are typically reserved for institutional investors and the ultra-wealthy. These funds operate similarly to mutual funds but with a unique structure that allows for daily pricing and transparency, quarterly redemptions, and institutional-level fees.

Ramin Kamfar, founder and CEO of Bluerock, an alternative asset manager focused on real estate, emphasized the importance of educating financial advisors and investors about the benefits of interval funds. He noted that while institutions have long understood the value of incorporating alternatives into their portfolios, individual investors are just beginning to catch up.

The high growth of interval funds in recent years can be attributed to their ability to provide access to illiquid investments that individual investors would not be able to access directly. With the increasing interest in alternatives and the limitations of traditional 60/40 portfolios, interval funds offer a compelling solution for enhancing returns without significantly increasing risk.

While actively managed mutual funds have been losing assets to ETFs due to their struggle to consistently deliver alpha, interval funds stand out by offering the potential for above-market returns through skilled portfolio management of alternative assets. However, it’s important to note that interval funds may not be suitable for investors seeking daily liquidity, as they operate on a quarterly redemption basis.

Overall, interval funds represent a growing trend in the investment landscape, providing individual investors with access to institutional-quality alternative investments and the potential for enhanced returns. As the education and awareness around these funds continue to grow, they are likely to play an increasingly important role in diversified investment portfolios.