The New CEFs on the Block

March 14, 2017

The New CEFs on the Block

But you can only take your money out step by step.

March 9, 2017 | by Cara Esser, CFA and Jason Kephart | Morningstar

PIMCO made headlines last month when it launched an interval fund (PIMCO Flexible Credit Income) and registered to raise $1 billion in assets. The last closed-end fund, or CEF, to raise more than $1 billion in assets was Goldman Sachs MLP and Energy Renaissance Fund (GER) in the fall of 2014. Interval funds have gained popularity in recent months as investors continue to search for income and are increasingly willing to invest in riskier fare to gain a bit more yield. These funds have some distinct advantages over CEFs, though there are plenty of reasons to avoid them. This month, we highlight interval funds and outline some important pros and cons of investing in them. 

Some in the financial press have asserted that, with all the challenges facing CEFs, particularly the potential imposition of the fiduciary standard on advisors and brokers, interval funds could be the next big thing. Asset managers seem to think so, too. As of the end of February, there were about 20 interval funds in registration, which would almost double the number of interval funds available. For comparison, just nine new CEFs launched in 2016, raising a paltry $3 billion in total; for the year-to-date 2017, there have been two CEF IPOs, raising just $375 million in assets.

While growing in popularity, interval funds remain a very small part of the overall market. As of February 2017, there were about 30 interval funds in existence, accounting for a total of around $9 billion in assets. By comparison, there are around 530 CEFs with nearly $400 billion in gross assets ($250 billion in net assets) in existence.

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Gil Armour, CFP
February 3, 2016

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