Advisors Choose Interval and Tender Funds for Liquidity Access

Private equity funds have historically been an enticing strategy for investors and institutions that fit the necessary criteria. Private equity funds require an investor lock-up for a fixed amount of time, due to the illiquid nature of the investment strategy. Private equity investments are considered a long-term play, and fund managers need to ensure their investors are sufficiently funded over the course of the fund's lifecycle. From a liquidity perspective, the investments generate cashflow that is distributed among investors, but any significant liquidity event takes place when the fund exits the investment via IPO or a secondary transaction. Interval and tender funds, on the other hand, provide their investors with liquidity in the 5-25% range through a repurchase event at the investor's discretion.

As the appetite for alternatives increases, advisors have been diligent in their response. Historically, accredited investors, family offices and institutional investors have had exclusive access to alternatives. The norm has shifted, and retail investors are now able to diversify their portfolios with various alternative strategies. To date, there are 44 registered closed-end funds in the market with a private equity strategy, 8 interval funds and 36 tender funds across ~$116 billion in assets. To put this number in perspective, there is ~$134 billion in assets under management across 231 interval/tender funds to date. This data indicates that ~19% of interval/tender funds have a private equity strategy, and ~86% of assets invested in interval/tender funds are allocated in private equity.

There are a few different ways registered private equity funds can allocate their capital. They can make direct LP investments in other private equity funds. This can be through a primary or secondary investment. A primary investment would be considered a direct investment at the time the target fund was raising capital. A secondary investment, on the other hand, is a transfer of shares from a primary investor to a new investor. This strategy is especially attractive in today's market because it allows investors in private equity funds faced with a lock-up period to liquidate a percentage, or entirely from their investment in the fund.

If you take a closer look into this area of the market and sample the top five interval/tender funds, you'll find that all five funds invest at least 74% of their assets in private equity fund investments. This data indicates that in order to accurately strike NAV, at least 74% of the fund's valuation material is coming from other GPs and fund managers.

From a fund administration perspective, it's important to ensure you're working with a team that understands the accounting process for a registered private equity fund. A miscalculation of the fund's NAV can be detrimental to the fund's reputation and can have negative consequences for the fund's investors.

Fund accounting for private equity interval and tender funds can be a manual task if there is not a solution in place to manage the operation efficiently. To accurately value the fund's portfolio and calculate the associated NAV, there needs to be consistent communication with the various GPs to retrieve all necessary valuation material. SS&C is the largest fund administrator globally, with over $3 trillion in assets under administration, across 2,700+ fund entities. SS&C supports the '40 Act market with a unique solution to effectively service registered private equity funds. Our relationships throughout the private markets enable us to effectively retrieve valuation material internally, and strike NAV. This eliminates the advisor's involvement in the valuation process and streamlines the fund accounting process entirely.

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