March 21, 2023

Joshua Deringer Comments on '40 Act Mutual Fund Wrappers With BoardIQ

In “Growing Alts Interest Presents Governance Issues, Experts Warn,” BoardIQ turned to investment management partner Joshua Deringer for his commentary on alternative strategies packaged within ’40 Act mutual fund wrappers.

Deringer explained that alternatives in ‘40 Act structures were governed on valuation by Rule 2a-5 of the ‘40 Act in the same way that open-end mutual funds are, but he noted there is an inherent tension between illiquidity and striking a fair value on assets. “From a risk perspective compared to traditional mutual funds, valuation is incredibly important,” he added.

“These products have limited liquidity but – depending on the structure – do have daily capital activity,” commented Deringer. “Having the right policies and procedures in place around valuation is incredibly important. On the other side of that is liquidity management, which is inextricably connected to valuation.”

Deringer added that interval funds are seen as more efficient to access because they can register an indefinite number of securities on a perpetual offering shelf and pay retrospectively under Rule24f-2 like an open-end mutual fund does.

“Traditional mutual fund platforms have interval funds on them, and as long as the fund is priced daily, it trades through the DTCC Fund/SERV platform,” he explained. “That makes it much easier to buy and similar to a mutual fund, whereas for a tender offer fund you have to buy through paperwork, which is a much more manual process.”

The full article is available for BoardIQ subscribers.

Full Article

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