As market volatility plagued credit markets in March, interval funds were gifted with the one tool needed to take advantage: patient capital.
It will take time to see how long-term performance plays out, but some interval fund managers viewed March’s upheaval as a generational, strategic buying opportunity. The environment underscored one of the main benefits of such fund structures.
In short, interval funds force patience. The funds offer only periodic times to redeem assets, typically once a quarter.
The limited redemption windows provide fund managers and their clients a few advantages. First, it prevents clients from acting on the behavioral impulses that cause so many people to buy high and sell low. This should create better long-term outcomes for the end investor.
The fund structure provides advantages for the portfolio manager too. Most interval funds invest in less liquid assets, such as real estate or structured credit markets. Since interval funds are not confined by daily redemptions, a portfolio manager can purchase illiquid assets with confidence they will be able to hold them until the investment thesis plays out.
In markets such as March, this put interval fund managers in an optimal position. Market volatility caused many investors to rush for the exits. Open-end mutual fund managers were required to sell assets to meet redemptions. Market illiquidity forced prices even lower. Interval funds could be patient and buy at low prices. They were the last ones standing.
Through one of its fund managers, Havener Capital offers an interval fund specializing in structured credit markets. To find out more about how this fund is navigating current opportunities, please contact us.