b'IntroductionAsset management vehicles, especially thoseshares are often purchased at a significant discount regulated under the Investment Company Act of 1940from a closed-end funds NAV. Because closed-end funds (the 1940 Act), are frequently painted with a broadare not required to buy back shares from shareholders, brush and described as having the same or virtuallyclosed-end fund managers do not have the concerns indistinguishable characteristics. For a long while,about redemptions experienced by mutual fund many fund vehicles, like interval funds and tender offermanagers, and they do not have to manage their funds, were not popular, barely attracting any attentionfunds to account for possible redemptions. from mainstream asset managers. Open-end funds, especially mutual funds, and subsequently exchangeInterval Funds traded funds, accounted for the majority of U.S. assetsAn interval fund is a closed-end fund that continuously under management. Now, with the coalescence ofoffers shares at NAV and provides regular liquidity increased interest in alternative assets, includingthrough scheduled repurchase offers (typically occurring private credit, and the desire to provide retail investorsevery three, six, or twelve months). The fund is required access to private markets through registered securities,to offer to repurchase a set percentage (5-25%) of these, as well as other fund alternatives, have becomethe funds total outstanding shares at each interval, increasingly relevant. This makes it important to gainbut investors are not obligated to participate. Interval a better understanding of various permanent capitalfunds conduct repurchase offers pursuant to policies alternatives, which might be said to exist on a spectrumadopted by their boards in accordance with Rule 23c-3 or continuum, with each having distinct features. Oncepromulgated under the Securities Exchange Act (the these sometimes fine distinctions are highlighted itExchange Act). The frequency, amount and timing of becomes possible to structure or match the fund typesuch repurchases are set pursuant to this rule. The to the asset mix, the sponsors desired compensationrepurchase is priced at the funds NAV, not at a market arrangements, the distribution channel and targetprice, which can be advantageous because the fund is audience. But first, a little background is useful. not subject to market fluctuations during the redemption Closed-end Funds period. In order to carry out this repurchase offer, an interval fund is required to adopt a policy that is publicly Closed-end funds raise a fixed amount of capital throughreported in its annual report. Shareholders may hold out an initial public offering and then list their shares on afor a better price, but they may not exit the fund until the national exchange. Investors in closed-end funds buynext designated interval. and sell shares in the secondary market, but the number of outstanding fund shares remains constant.An interval fund provides an opportunity for investors to access illiquid assets while maintaining some liquidity Closed-end funds are not required to redeem sharesthrough periodic share repurchases. Interval funds may at net asset value (NAV), which means managers havebe a better vehicle to address investor liquidity needs greater flexibility to invest in illiquid assets. Closed- than open-end funds, because they do not need to end fund investors redeem their shares differentlyaccommodate daily liquidity requests. Shareholders than open-end (mutual) fund investors. Unlike mutualare required to give the fund advance notice of their fund shares, closed-end fund shares are not typicallyredemptions. Periodic repurchases effectively reduce redeemable by the closed-end fund at NAV or otherwise.the spread between the market trading price of a funds Resales of closed-end fund shares generally are madeshares and the funds NAV, which helps to facilitate through the secondary markets, either on nationaladditional capital raising following the funds initial securities exchanges for listed shares or over thefundraising round. counter. Due to market volatility, closed-end fund Mayer Brown|Introduction 3'