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Devesh Shah's Article on RE Funds

BenWPBenWP
in Fund Discussions
I was trying to understand how the seemingly open-end funds listed in this month's Commentary article are not for sale in the same way that close-end funds do trade on equity markets. The following explanation on Schwab's website cleared things up for me:

"Interval funds are not available for purchase by individual investors.

Interval funds are closed-end funds that offer daily purchases and redeem shares by periodically offering to repurchase a certain portion of shares from shareholders (“tenders” or “redemptions”). Rules and regulations related to interval funds enable fund companies to create portfolios with less capital volatility while holding a greater percentage of less-liquid, longer-term investments, often with higher risk-return opportunities than may be readily achieved in open-end mutual funds or exchange-traded funds (ETFs).

Although interval fund purchases resemble open-end mutual funds in that their shares are typically continuously offered and priced daily, they differ from traditional closed-end funds in that their shares are not sold on a secondary market. Instead, periodic repurchase offers are made to shareholders by the fund. The fund will specify a date by which shareholders must accept the repurchase offer. The actual repurchase will occur at a later, specified date. If repurchase requests exceed the number of shares that a fund offers to repurchase during the repurchase period, repurchases are prorated (reduced by the same percentage across all trades) prior to processing. In such event, shareholders may not be able to sell their expected amount, and would potentially experience increased illiquidity and market exposure, which could increase the potential for investment loss."

FWIIW, I own QREARX in my retirement account at TIAA. It's up about 12% YTD, offering nice ballast.

Comments

  • yogibearbullyogibearbull
    Interval-funds is newer structure with some elements of CEFs, OEFs, ETFs. There are several dozen such funds now. Barron's has a weekly list of these. They are unlisted (on exchanges), so must be bought through brokerages/advisors; there may be accreditation/eligibility requirements. Limited optional redemptions are offered (typically, up to 5% of AUM quarterly). It may be a good structure for illiquid stuff, but one has to deal with high ERs, access limitations and almost no trading (roach-motel analogy comes to mind).

    BTW, TIAA T-REA/QREARX is not an interval-fund. It has Liquidity Guarantee from TIAA, and T-REA pays for that as part of its ER. While there is a once per quarter withdrawal limitation, there is no limitation on the amount withdrawn. In fact, 2 successive withdrawals can be days apart if timed properly at quarter end and start. Also there are limitations on the account size but there are many ways to bypass those (systematic investments, rollovers, using TIAA advisors).
    https://www.tiaa.org/public/investment-performance/investment/profile?ticker=41091375
  • Devo
    Some newer structures can, from time to time, be useful. Most innovation is not. I'd agree that it pays to be very careful touching unknown GMO and WMD in individual portfolios.
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