Skip to main content

Daniel Reich Comment On Regulatory Notice 22-08

Daniel Reich

The concept behind interval funds is a higher return in exchange for non daily liquidity. While the concept appeals to clients with surplus liquidity, the regulatory oversight is poor All prospectuses I have read mislead the client and the FA to believe the investment may be redeemed on a specified date. What is never discussed is the optionality the fund has where they may limit redempyions to 5% of the fund on the redemption date. We tried to redeem two funds, Resource and Stoneridge, and waited over a year (4 intervals) to liquidate Resource, we tendered in December of 2019, and redemptions were halted because they agreed to be bought by Goldman (material events) It took us 6 intervals to redeem after the deal fell through. Resource did have the liquidity to redeem as their investments were primarily in marketable securities from Treasuries to tradeable equity positions. They hid behind the 5% rule Stoneridge is the same story and we are still redeeming shares as they are citing the 5% rule In both cases the markets were stable meaning no extraordinary event surrounding the original redemption date There are extraordinary market conditions for which the rule was included, Spring of 2020 is a good example of where the rule was and should be applied. However, to allow firms to hide behind the rule to stem liquidations is not in the retail clients best interest and certainly not the intent I suggest the 5% limit be raised to 30% to protect the retail investor. Additionally if a fund chooses to redeem less than 100% of tendered shares they be put in a 12 month liquidation phase and closed. Daniel Reich