By Kelly Lynch
There’s an apparent disconnect between fund families’ enthusiasm for semi-liquid alternative funds and distribution platforms’ ability to add them. A recent Ignites article by Alyson Velati notes that of the hundreds of interval funds on the market, only a handful are offered by wirehouses, according to data from XA Investments: 11 from UBS, 10 from Morgan Stanley, eight from Merrill Lynch, and five from Wells Fargo.
(See Interval Funds Coming to a Platform Near You? Not Quite Yet; subscription required.)
Ignites does a great job highlighting multiple reasons why distributors may be wary of interval funds—to the point of being “picky.” Performance history, size and staying power are big ones, unsurprisingly. But so is technology … and I suspect this is a factor underappreciated by many.
In our experience talking with service providers, interval and tender-offer funds often involve manual processes relating to:
- Account opening. Processes often look more like private investments than registered funds.
- Trading windows. Essentially the fund has to “turn off” and “turn on” during prescribed windows.
- Redemption proration. Calculations are often manual and involve reversing/reapplying trades.
The Ignites story references comments from Jacob Mohs, editor of the Interval Fund Tracker, who “expects that that integration process to become smoother soon through automation.”
We fully agree, as we’ve been behind-the-scenes helping to eliminate these processes. For example:
- By applying a “’40 Act scale” approach to interval funds, we automated trade proration calculation to reduce the process from one day to just moments and to shorten DTCC settlement from four days to one.
- We streamlined the account opening workflow to reduce errors, remove the reliance upon offline spreadsheets, and provide dashboard-based real-time status updates.
Essentially, what we hear again and again from broker-dealers amounts to the need for processing speed and information transparency.