Liquidity Transformation and Performance in Interval Funds
Interval funds have experienced explosive growth, with assets under management surging at nearly 40% annually to reach $95 billion by the end of 2024. This rapid expansion raises an important question: do these evergreen structures actually deliver value to investors?
Unlike traditional mutual funds or ETFs, interval funds offer a unique proposition. They provide periodic redemptions—typically quarterly—directly from the fund at net asset value, while maintaining the ability to allocate substantial portions of their portfolios to illiquid private assets. Given this explosive growth trajectory, it’s no surprise that asset managers are now exploring ETF structures specialized in private assets.
The Research
Stefano Pegoraro, Sophie Shive, and Rafael Zambrana examined whether interval funds effectively compensate investors for limited liquidity in their July 2025 study, “Democratizing Illiquid Assets: Liquidity Transformation and Performance in Interval Funds.“ Their research, covering 2010-2024, compared 129 interval funds against 1,715 actively managed and 2,917 passively managed ETFs with matching investment styles using Morningstar data.
The Cost Structure
Before examining performance, it’s crucial to understand what investors pay. The average net expense ratio across all share classes was 2.77% (median: 2.43%), including management fees, borrowing costs, annual expenses, and incentive fees.
The fee structure reveals important details:
Management fees averaged 1.38% of total net assets (median: 1.42%).
One-third of funds charge performance fees, most commonly at 20%.
Among performance-fee funds, 49% apply a hurdle rate, typically 6%.
Of those with hurdles, 88% include catch-up provisions.
Only 35% of incentive-fee funds include high-water mark provisions.
Where Interval Funds Excel: Fixed Income