Where PIMCO Sees Attractive Opportunities

PIMCO recently launched the Flexible Credit Income Fund(PFLEX). The fund has a a flexible mandate to capitalize on a variety of credit market opportunities. On the fund’s website, PIMCO describes the opportunities it is expecting to find:

Q: Where do you see attractive opportunities for the Flexible Credit Income Fund today and in the future?
A: While we believe valuations on many traditional credit sectors (investment grade, high yield and bank loans) are relatively fair at current levels, we are seeing several robust opportunities today.
First, despite strong performance in U.S. real estate markets since the financial crisis, we continue to find value in both public and private mortgage debt, especially on the residential side. These opportunities include traditional legacy non-agency mortgage-backed securities (MBS), legacy loans that Fannie Mae and Freddie Mac continue to dispose, and opportunities to purchase newer origination non-agency mortgage loans directly. (We see many loans being made at significantly high interest rates given the regulatory burden associated with making non-traditional loans.)

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Comparing Interval Funds to Open-End Mutual Funds

Interval Funds have several key similarities with open-end mutual funds, but they are not identical.   Mutual funds and interval funds both offer shares on a continuous basis at NAV.  Mutual funds and interval funds are both “40 Act Funds” that provide investor protections from the Investment Company Act of 1940.   Mutual funds by definition allow daily redemptions, but interval Funds provide limited liquidity at set intervals.  This diagram, from the recently launched Sierra Total Return Fund, compares and contrasts Open-End Mutual Funds, Closed-End Funds, and Interval Funds:

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Investors May Soon Be Hearing More About Interval Funds

Recent links:
What are Interval Funds? – Wall Street Journal

Some researchers think there will be both a need and a demand for exposure to such assets in the near future. Low returns from traditional investments by historical standards will lead to a “steady stream of assets moving into alternative investments,” says a 2016 report from consulting firm McKinsey & Co. “These flows will be redirected heavily toward illiquid private markets.”

Interval funds may also provide a boost for financial advisers in a world where passive investing in funds that track market indexes is the rage.

“What retail investors now hold is largely a portfolio of passive exchange-traded funds, so the alternative-assets domain is how the adviser will add value to the client,” says Kimberly Flynn, managing director of XA Investments LLC in Chicago.

Alts offer a new course- – Financial Advisor Magazine

Pioneer ILS Interval fund hits $305m, some loss impact in half-year -Artemis

Also, registration is still open for the Adisa Due Diligence Forum. This event is designed for industry professionals who are employed with a Broker-Dealer, RIA, Family Office, Due Diligence Firm, or select others, that offer alternative investments in their business.

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Blackstone Prepares For Interval Fund Launch

Blackstone/GSO registered a new interval fund on June 30. The Blackstone/GSO Floating Rate Enhanced Income Fund intends to follow a familiar credit strategy, focused

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RBC Subsidiary Launches Reinsurance Fund

The SEC declared the registration statement effective for The City National Rochdale Select Strategies Fund(CNRLX ) on June 22, 2017. CNRLX is seeking to

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How Interval Funds Operate

A key defining feature of an interval fund is that they are regulated under the 1940 Act.  This provides critical protections for investors.  DLA Piper released a handbook discussing the 1940 Act and related statues and regulations that apply to and otherwise bear on the interval fund operations. The information covers the key regulatory framework for 40 Act Funds, as well as the impact of recent regulatory changes.
According to DLA Piper:

 ….an interval fund can be a suitable vehicle in which to run “alternative” strategies – i.e., strategies that are designed to produce returns that are not highly correlated to the broader stock and bond markets. Interval funds also mesh well with certain noteworthy regulatory initiatives – for example, FINRA’s new customer statement rule (RN 15-02), and the Department of Labor’s fiduciary rule and accompanying BIC exemption – making them attractive vehicles for use by independent broker dealers and other financial advisors that must operate within the complex regulatory environment.

Additionally, Griffin Capital, which operates the Institutional Access Credit Fund, and the Institutional Access Real Estate Fund…

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Research Resources

This regularly updated Research page provides the best interval fund research sources for asset managers launching closed end interval funds, and for investors considering using the interval fund structure to achieve asset allocation goals.

Topics covered include:
Background and Industry Research
Legal/Structure Guides
Fund Sponsor Research

If you have a piece you think should be added to the Research page , or are seeking customized research, please email info@intervalfundtracker.com

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Why aren’t there more publicly traded interval funds?

Most publicly traded interval funds do not trade on an exchange. Many people in the industry speak of interval funds as if they are always non-traded. However it is possible for an interval fund to be publicly traded. Currently, of the ~40 active or and recently launched interval funds, the Blackrock Enhanced Government Fund (EGF) is the only one that is publicly traded. Or put differently, of the >500 publicly traded closed end funds, EGF is the only one that is structured as an interval fund. It offers to repurchase 5-25% of its shares annually, and charges a repurchase fee of 2%. Since it is an interval fund, the repurchase plan can be suspended only with shareholder approval.

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Relative Value Fund Launches

The Relative Value Fund, an interval fund seeking to raise $100 million went effective on May 1, 2017

The Fund will use a multi-manager approach, investing variety of alternative investment strategies, in pursuit of an absolute return objective.

According to the registration statement:

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Comparing The New Credit Funds

With a whole slew of credit interval funds hitting the market this year, its time to compare the basic structures and fee arrangements.  The chart below consists of funds that have been declared effective within the past year, all from familiar sponsors.  Within the broader category of credit, there are a lot of substrategies, but its no coincidence, that all of the Sponsors for these funds have marketed BDCs to retail investors in the past.

Interval Funds- Credit              
Fund FS Energy Total Return Fund- A FS Energy Total Return Fund -I Griffin Institutional Access Credit Fund- A Griffin Institutional Access Credit Fund- C Griffin Institutional Access Credit Fund- I Sierra Total Return Fund Cion Ares Diversified Credit Fund
Ticker XFEAX XFEYX CRDTX CGCCX CRDIX SRNTX CADEX
Advisor FS Energy Advisor LLC FS Energy Advisor LLC Griffin Capital Credit Advisor, LLC Griffin Capital Credit Advisor, LLC Griffin Capital Credit Advisor, LLC STRF Advisors, LLC (Medley Management) Cion Ares Management, LLC
Sub-Advisor Magnetar Asset Management LLC Magnetar Asset Management LLC BCSF Advisors, LP BCSF Advisors, LP BCSF Advisors, LP NA Ares Capital
Minimum Initial Investment $2,500 $1,000,000 $2,500 $2,500 $1,000,000 $2,500 $2,500
Strategy Equity and Debt securities of natural resource companies. Equity and Debt securities of natural resource companies. High yield debt securities High yield debt securities High yield debt securities Debt and Equity Diversified Credit
Targeted Capital Raise Up to $2 billion Up to $2 billion Up to $1 billion Up to $1 billion Up to $1 billion Up to $1 billion Up to $1 billion
Redemption Program 5% per quarter 5% per quarter 5% per quarter 5% per quarter 5% per quarter 5% per quarter 5% per quarter
Offering Costs              
Maximum Total Sales Load 5.75% None 5.75% None None 2.00% 5.75%
Maximum Commission 5.00% None 5.00% None None 0.75% 5.00%
Dealer Manager Fee 0.75% None 0.75% None None 1.25% 0.75%
Distribution Fee None None None 0.75% None 0.75% of average daily net assets until cap is reached None
Shareholder servicing expenses 0.25% average daily net assets None 0.25% average daily net assets 0.25% average daily net assets None 0.25% of average daily net assets 0.25% of average daily net assets
Operating Fees/Costs              
Management Fee 1.75% of total assets 1.75% of total assets 1.85% of net assets 1.85% of net assets 1.85% of net assets 1.5% of total assets 1.5% of total assets
Contingent Deferred Sales Charge None None None 1.0% during first year None 1.0% during first year 1.0% during first 18 months
Incentive Fee None None None None None 15.0% of net investment income over 6.0% hurdle, with catch up provision 20% of net investment income over 6% hurdle, with catch up provision
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