Envision Financial System Logo

You need to offer interval funds, but how do you support their unique attributes?

Among the types of unlisted closed-end funds, interval funds continue to lead new fund launches. More and more investment managers are figuring out workable approaches to daily valuations, allowing their strategies to be offered within the registered-fund marketplace rather than only the private fund market.

The problem for fund servicers—whether transfer agents, broker-dealers or asset managers themselves—is where to put them, operationally.

Fund servicers typically segregate operations for traditional funds and alternative funds. The products, investors and regulatory contexts are different and for many firms, so is the investor recordkeeping technology.

  • Traditional fund operations: Automated applications are needed to manage traditional funds high volume, daily pricing, and 1099 tax statement generation.
  • Alternative fund operations: Standalone software is typically used to support the low volume, periodic pricing of private funds. Capital calls, tender offers, and redemption proration are likely handled with some degree of manual tracking. The systems are NOT able to generate 1099 tax statements for investors.


The problem with 1099s

We mention 1099s because they are critical to the investment managers’ desire to launch an interval fund in the first place. Issuing 1099s (rather than K-1s for partnership income) is part of what makes interval funds work as registered products and attractive to the retail investor.

Given the need for 1099s, the logical place to “put” interval funds is with traditional fund operations using systems geared more to high volume, daily priced products. However, most transfer-agency software can’t handle the nuances of interval funds. Examples include non-daily processes / future-dated events, such as capital calls, tender offer proration, and monthly pricing.

That leaves traditional fund operations staff in a difficult situation. They’re running a high-volume operation dependent upon standardization and automation and wind up getting bogged down with interval-fund manual workarounds. The classic example is having to set aside—and later manually enter, all on the same day—hundreds of interval-fund transactions.

The upshot is traditional fund operations teams cannot handle interval funds at scale.


What about the alts shop?

The other apparent option is to “put” interval funds with alternative fund operations. Their existing software and processes can handle the fund features (though more manually than ideal for interval funds trying to reach a broad audience.) Unfortunately, the technology isn't supportive of 1099 . Nor do the workflows support the needs of operations beyond small scale.

Some firms have explored sending data from the alts shop to traditional fund operations for the purpose of generating 1099s, only to find that’s not technologically viable. We’re aware of more than one firm that had initially “housed” interval funds in the alts area only to realize they had a problem as tax time approached.


Envision’s “one system” approach

Envision’s system is different from legacy systems. Thanks to its versatility, the system fits both traditional fund operations and alts operations. Therefore, servicers can handle interval funds in either operational context, at scale. Envision can generate 1099s and accommodate all the interval fund features at scale.

For example, operations teams, using the Envision system can:

  • Establish trading calendars for specific investment & redemptions dates, by fund
  • Enter trades as they come in and put them in a pending status, ready to be processed on the next valuation date
  • Automatically calculate and process tender proration
  • Use the DTCC AIP trading services
Phone: (714) 247-0030
Fax: (714) 247-0029
Email Us