XA Investments Non-Listed Closed End Funds Third Quarter 2024 Market Update

Shows Robust Growth and Diversification

XA Investments LLC (“XAI”), an alternative investment management and consulting firm, has released its Non-Listed Closed-End Funds Third Quarter 2024 Market Update covering current market trends and industry highlights. The non-listed closed-end funds (CEF) market includes all interval and tender offer funds. Some of the topics of the report include a growth analysis for the twenty largest funds and recently launched funds, a market-wide proration analysis and the rise of public / private partnerships.

“Overall, the non-listed CEF market continues to demonstrate robust growth and diversification, driven by innovative fund launches and increasing by advisors’ acceptance in the wealth management channel,” stated Kimberly Flynn, the President of XAI. “While challenges remain, particularly in educating investors and navigating regulatory complexities, we believe the market's trajectory remains positive, with significant opportunities for expansion in the coming quarters.”

XAI’s Market Update showed that as of September 30, 2024, there were 235 interval and tender offer funds with a total of $162 billion in net assets and $191 billion in total managed assets, inclusive of leverage. The 112 interval funds make up 59% of the total managed assets at $113.3 billion and the 123 tender offer funds make up the other 41% with $77.6 billion in total managed assets. The 235 funds currently in the market is a net increase of five funds from the second quarter along with a total managed assets increase of $17 billion. Year-to-date, there has been an increase of 27 funds, with $36 billion in net assets increasing as well.

In total, there are 133 unique sponsors in the interval and tender offer fund space. The market has continued to diversify with the market share of the top 20 funds decreasing from 73% at the end of the second quarter to 65% at the end of the third quarter. While there were three new fund sponsors that entered the market in 2024 (Beacon Pointe, Catalyst Capital Advisors and Diamond Hill), the majority market share is currently within the hands of the fast movers, including Alkeon, Cliffwater, Partners Group, and PIMCO.

Demonstrating their attractiveness to investors, there are 44 sponsors that have two or more interval and/or tender offer funds. Additionally, there are 18 funds in the Securities and Exchange Commission (SEC) backlog from sponsors looking to launch another fund. Perhaps reflecting the activity in the investing marketplace, since 2020 the majority of funds launched are credit or private equity strategies with 74 credit funds and 47 private equity funds in the interval and tender offer categories.

One interesting development noted in the third quarter is the utilization of partnerships to bring alternative products to market. These partnerships, usually between a firm that is focused on traditionally public assets and firms that are usually focused on private assets, allows the firms to expand their product offerings and use the expertise of their partners to offer best-in-class solutions. Some of these partnerships that plan to have interval fund offerings include BlackRock and Partners Group, Capital Group and KKR, and Lord Abbett and Apollo.

Looking at the top 20 largest funds in the market, they all have over $2 billion in total managed assets and 16 out of the 20 were launched prior to 2020, giving them four-plus year track records. This gives the market a positive growth outlook as it shows the newer interval and tender offer funds have the potential to grow. These funds also represent 52% of the combined net flows for the quarter, with credit and venture / private equity funds continuing to draw positive net flows. In addition, net flows in general have increased quarter-over-quarter, with the majority going into daily net asset value (NAV) funds without suitability restrictions.

The non-listed CEF market continues to grow with a total of 53 funds currently in the SEC registration process. In the third quarter, there were a record 21 new filings compared to the third quarter of 2023, when there were only 11 new fund filings, representing a 90% increase in filings. Newly launched non-listed CEFs filed an average of approximately three N-2 / N-2A filings and spent nearly six months in the SEC registration process. A fund’s asset class continues to be the main driver of time spent in the SEC review process with credit and real estate funds being faster to launch compared to specialty funds. Seven new funds launched in the third quarter with more launches and filings anticipated in the fourth.

Most non-listed CEFs have management fees in the range of 1.00% to 1.50% with an average of 1.19%. In addition, more than three out of four funds (77%) are not subject to an income incentive fee or a total-return based performance fee, leaving only 23% of funds that do charge these types of performance fees. While in the capital raising stage, many interval and tender offer fund sponsors offer fee waivers to help accelerate the process giving investors an extra incentive. Some categories like credit and venture / private equity will have higher net expense ratios due to combinations of income incentive fees, performance fees and underlying fund fees.

Looking at fund performance, the top performing non-listed CEF funds for the one-year period ending June 30, 2024, in order of performance, were the Stone Ridge Reinsurance Risk Premium Interval Fund, the Skybridge Multi-Adviser Hedge Fund Portfolios LLC, and the Advantage Advisers Xanthus Fund, L.L.C. In addition, net expense ratios for non-listed CEFs average 2.42% including management fees, performance fees, acquired fund fees, if any, and other expenses.

For more information on the interval fund market and to read our full quarterly report on non-listed CEFs, please visit the CEF Market research page linked here and click ‘Subscribe’ for access to XA Investments’ online research portal and pricing information. In addition, please contact info@xainvestments.com or 888-903-3358 with questions.

About XA Investments

XA Investments LLC (“XAI”) is a Chicago-based firm founded by XMS Capital Partners in 2016. XAI serves as the investment adviser for both a listed closed-end fund and an interval closed-end fund, respectively the XAI Octagon Floating Rate & Alternative Income Trust (NYSE: XFLT) and the Octagon XAI CLO Income Fund (OCTIX). In addition to investment advisory services, the firm also provides investment fund structuring and consulting services focused on registered closed-end funds to meet institutional client needs. XAI offers custom product build and consulting services, including product development and market research, marketing and fund management. XAI believes that the investing public can benefit from new vehicles to access a broad range of alternative investment strategies and managers. For more information, please visit www.xainvestments.com.

Sources: XA Investments; CEFData.com; SEC Filings.

Notes: All information as of 9/30/2024 unless otherwise noted. Total managed assets is inclusive of leverage. The non-listed CEF market is subject to lags in reporting and limited data availability. Data such as asset levels, net flows, and performance are delayed up to 90 days after quarter-end and are not available for all funds. All data in the report is the most current available. Please contact our team if you have any questions about the non-listed CEF marketplace

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