Typically, less volatile than hedge funds
Many of the investments made within closed end interval funds are the same classes of securities private and hedge funds can invest in. The difference is the required diversification of an interval fund. While open end mutual funds limit most investments to 5% of the total portfolio, hedge funds have few restrictions. Interval funds fall in between. In most cases investments in any one security must be 15% or less, which is less diversity, more opportunity for volatility, but also more risk. By comparison interval funds are more diversified than private or hedge funds, which results typically in less volatility, less opportunity for an investment “home run”, but also less chance of one bad investment sinking your whole ship.
What’s to stop a Run on the Fund?
Another key feature of interval funds that keeps them secure is a restriction on how many investors can remove their funds in any one interval. Normally this amount is limited to somewhere between 5% and 10% of the fund’s Net Asset Value (NAV). This provides the fund’s managers with a secure source of investment longevity, to ensure the fund can continue to remain viable. While it does make these funds somewhat illiquid, but it’s a fair trade off for access to these alternative investment securities.
