At a time when closing a traditional, ten-year private markets fund has been challenging, managers raising capital through interval funds have seen assets under management (AUM) accelerate.
In the US alone, interval fund AUM has almost quadrupled during the last five years, increasing from just US$18.6 billion in January 2020 to US$93.4 billion in January 2025, according to Morningstar figures reported by Pitchbook.
Interval AUM has surged during a period when private markets fundraising has been in decline. Year-on-year fundraising has now fallen for three consecutive years and in 2024 was down 30 percent on the five-year average, according to Bain & Co analysis.
The growth in interval fund assets has provided a timely capital boost for the alternative assets industry at a difficult point in the fundraising cycle.
Breaking down barriers
Interval funds have been available to investors as early as the 1990s but have experienced a surge in popularity during the last five years as managers have moved to broaden investor bases and raise more capital from non-institutional channels.
The non-institutional investor market has been difficult for private markets managers to crack, with the investment minimums and long periods of illiquidity associated with the traditional, 10-year, close-ended private markets fund an awkward fit for individuals and family investors who have smaller amounts to invest and require more flexibility than long-term horizon institutional investors. A 2024 survey of 100 financial advisers by consultancy NextWealth found that illiquidity was one of the biggest barriers to individual investors investing in private markets.
The huge opportunity that the democratization of private markets presents, however, is so vast (Bain & Co forecasts suggest that non-institutional allocations to alternatives could climb as high as US$12 trillion by 2034) that managers are now working harder than ever to improve their reach into the non-institutional market, and interval funds have emerged as one of the most popular ways of doing so.
Interval funds, however, are not exclusively the preserve of non-institutional investors, with managers offering interval fund investing opportunities noticing strong appetite from institutional clients too.
Ten-year funds are generally a good fit for institutions investing over the long-term, but the flexibility of the interval fund has appealed to LPs too, who like the having the option of adjusting private markets exposure without having to go into the secondaries market, as well as the immediate exposure to private markets assets that interval funds provide.
In ten-year funds, LPs make commitments at the start of the fund’s life, but that capital is only put to work as it is called down through the duration of the fund’s distribution. Uncalled capital can’t be deployed in other assets, as LPs have to be able to meet all capital calls by the fund manager when required. In an interval fund capital is put to work straightway and fully invested in a portfolio of assets at the next trading date
The more liquid structure of an interval fund, meanwhile, has been particularly attractive as distributions from 10-year funds in LP portfolios have dried up. Interval funds have given institutional and non-institutional investors the option of drawing regular yield from their investment but also retain long-term exposure to private markets assets.
A flexible option
Interval funds have emerged as an attractive channel of non-institutional investment as the structure offers opportunities for investors to take liquidity at set times (either quarterly or monthly) as well as allowing investors to invest on daily basis, in the same way as they would in a mutual fund, rather than having to wait for a manager to come to market with a new fund every five years.
It is important for investors to understand, however, the interval funds are not liquid in the same way as stocks or mutual funds, where you can take liquidity on daily basis. Interval funds only offer the option to take redemptions during pre-agreed windows, and these redemptions will typically be limited at around five percent of the interval fund’s net asset value (NAV) at the time of redemption.
But while interval funds are not designed to be traded or present daily liquidity, they do give investors, particularly non-institutional investors, the comfort that their capital is not entirely locked up should they need cash in case of emergencies or life events such as divorce or illness.
The right rails
For managers managing, or seeking to manage, interval funds, it is essential to have the right operational rails in place to manage interval vehicles effectively. The infrastructure that GPs use to raise and manage 10-year funds is different to what is required to oversee interval funds.
Interval funds demand a capable back-office that can operate scale to meet the compliance, reporting and portfolio construction aspects of running these vehicles.
Managers have to have the bandwidth to support potentially hundreds of non—institutional investors in an interval fund, as opposed to relatively small group of institutional LPs in a 10-year fund, and understand the specific compliance, know-your-client (KYC), anti-money laundering (AML) and tax rules as they apply to non-institutional clients.
Managers also have to ensure that their back-offices are able to cope with the additional reporting and portfolio modelling requirements of interval funds. Publishing quarterly or monthly NAV figures to facilitate redemption windows, and the associated reporting, will be step up for managers new to the interval fund market.
Portfolio modelling is also more complex, with managers leaning on real time data from the back and mid-office to calculate what portion of a fund should be held in liquidity sleeves, and what cash will be generated by the portfolio naturally, in order to cover upcoming redemption requests.
Indeed, interval fund portfolios will be structured to include mix private markets assets, such as secondaries and private credit, to ensure that there is always some cash flowing back into the fund. Calculating liquidity requirements and modelling the ideal portfolio construction demands a large and sophisticated back-office function.
The staffing and technology costs that come with handling these obligations are significant and will involve large sums of capital expenditure.
Working with an experienced, tech-enabled fund administration partner, that has the scale and digital infrastructure to absorb the reporting and data demands that come with running interval funds, offers a cost-effective option for managers moving into the interval funds space.
Taking advantage of the large upswing in interval fund AUM, and the opportunity the structure provides to penetrate the non-institutional investor base will not only require front-office investment management pedigree, but also a resilient and robust back-office capability.
