Helping Solve the Transparency Challenge of Private Investments

As an investment adviser, you know how an ever-evolving investment landscape influences the investment products you use to construct client portfolios. And today, client demand for transparency has become non-negotiable. 

At a time when investors are better informed and more enlightened than ever, the pressure to demystify private investments has pushed regulators to take action. The SEC's recent rules have sought to address the challenges of opacity in private funds. Fortunately, there's an alternative that already exists and that has been steadily gaining attention among advisers: Interval funds. 

These innovative investment vehicles provide a solution that transcends the traditional barriers of private investments, offering transparency, real-time pricing, and access to uncorrelated investment strategies that can readily be incorporated in your client portfolios. In this article, we'll explore how interval funds have emerged as a valuable tool for advisers in today's financial world.

The Transparency Challenge in Private Investments

Traditionally, private investments have been shrouded in mystery, often presenting a hurdle for both advisers and investors. Clients increasingly demand clarity about fee structures and portfolio composition. The SEC's new rules on private funds aim to enhance transparency, but they also come with potential administrative burdens for fund managers and advisers. It is against this backdrop that interval funds are gaining attention.

According to a report from Pensions & Investments, the SEC's private funds rule is set to improve transparency in the industry. However, it also mentions potential headaches for managers in the process. Interval funds offer an alternative that could be a win-win solution for advisers, managers, and investors.

Interval Funds: An Overview

Interval funds are a unique investment vehicle, combining elements of open-end and closed-end funds. They offer periodic liquidity to investors, usually through quarterly or semi-annual redemption windows, providing some flexibility that is absent in traditional private investments.

Interval funds have been around for several decades but are now experiencing a resurgence. Their growth is partially attributable to the demand for private investment alternatives. The industry has seen a steady rise in assets under management in recent years, reflecting their increasing popularity among investors.

Interval funds have carved a niche in portfolio construction by providing an alternative to traditional private investments. They can serve as a diversifying element within portfolios, enhancing risk-adjusted returns. As investment advisers, you have the flexibility to incorporate interval funds as part of your model portfolios with relative ease.

Potential Benefits

One of the most significant benefits of interval funds is their daily pricing. Unlike traditional private investments, which are often valued periodically and with a lag, interval funds provide real-time asset valuations. This transparency provides your clients with a full view of their portfolio valuations, whether their investments are publicly traded or private.

Interval funds offer a variety of strategies and asset classes, allowing for diversification within a single investment vehicle. This feature is especially valuable when constructing well-balanced and risk-managed portfolios.

Knowing that liquidity and transparency are paramount to investors, interval funds bridge the gap between private and public investments. They accomplish this with a funds structure that enables investors to invest on a daily basis.

Accessing Private Real Estate

Next to the credit market, real estate represents the second largest private asset class. Yet historically, private real estate investments have been the domain of institutional investors, often out of reach for retail investors and their advisers. Interval funds, however, break down these barriers.

Interval funds eliminate some of the traditional obstacles associated with private real estate investment, such as high fees, illiquidity, and limited transparency. Advisers can now provide clients with opportunities to invest in private real estate without the drawbacks.

Interval funds in the private real estate sector offer various strategies, including core, core plus, value add, and opportunity investments. This diversity allows you to tailor investments to your clients' specific financial goals and risk tolerance.

Unlike with previous private real estate investment structures, interval funds now allow you to easily incorporate private real estate into your model portfolios, providing clients with access to the income and growth benefits of these uncorrelated investments. 

Conclusion

As mentioned, the SEC’s new rule for private funds’ investment advisers is designed to create a greater level of transparency in private investment practices in order to protect investors from harm. The ruling became effective November 13, 2022 and we expect more managers to leverage the interval fund structure in order to comply with the SEC’s regulations.

The good news is that interval funds providing exposure to many private asset classes are already available, and for advisers seeking to diversify their clients’ real estate holdings, we have built one just for you. The Accordant ODCE Index Fund is a broadly diversified portfolio of institutional quality properties managed by many of today’s premier investment managers. And it’s available for you to use as a single allocation in an interval fund structure. Discover more about this approach today by visiting us at accordantinvestments.com.

Investors should carefully consider the investment objectives, risks, charges, and expenses of the Accordant ODCE Index Fund. This and other important information about the Fund is contained in the prospectus, which can be obtained online by visiting www.accordantinvestments.com. The prospectus should be read carefully before investing. 

Accordant Investments LLC (“Accordant”) is an SEC registered investment adviser. This presentation does not constitute an offer to sell, a solicitation of an offer to buy, or a recommendation of any security or any other product or service managed by Accordant.

The Accordant ODCE Index Fund (the "Fund") currently offers Class A Shares, Class I Shares, and Class Y Shares which will all be continuously offered at the Fund’s net asset value (“NAV”) per share, plus, in the case of Class A Shares, a maximum sales load of up to 5.75%, from which a dealer-manager fee of up to 0.75% of offering proceeds may also be paid. Holders of Class A Shares, Class I Shares, and Class Y Shares have equal rights and privileges with each other, except that Class I Shares and Class Y Shares do not pay a sales load or dealer manager fees. See “Ongoing Distribution and Servicing Fees” and “Summary of Fund Expenses” for information on servicing and distribution fees in the Prospectus. Class I Shares and Class Y Shares are each not subject to a sales load; however, investors could be required to pay brokerage commissions on purchases and sales of Class I or Class Y Shares to their selling agents. Inception date of the Class I Shares is September 11, 2023, and Class A Shares is November 1, 2023. 

The Fund was previously registered as the IDR Core Property Index Fund, Ltd. (the “Predecessor Fund”). The Fund’s investment adviser is Accordant Investments LLC (“Adviser”) and Fund’s sub-advised by IDR Investment Management LLC (“Sub-Adviser”). The Predecessor Fund was a quarterly valued closed-end tender offer fund only available to accredited investors. Pursuant to a proxy filed with SEC and a special shareholder meeting that occurred on August 31, 2023, the Predecessor Fund converted into the Fund which is a daily valued registered closed-end interval fund (“Conversion”). The Predecessor Fund previously charged a management fee of 40 bps while the Fund now charges 60 bps. Fund performance shown in this presentation is net of fees and for performance prior to September 11, 2023, reflects a 40 bps management fee and for performance on and after September 11, 2023, reflects a 60 bps management fee. The performance shown reflects a continuation of performance from the Predecessor Fund to the Fund. While the Fund has a different investment adviser than the Predecessor Fund, the Fund’s portfolio management is substantially similar to the Predecessor Fund. The Conversion was a non-taxable event for existing shareholders.

Past Performance is No Guarantee of Future Results.

Investing in the Fund involves risks, including the risk that you may receive little or no return on your investment or that you may lose part or all of your investment. The Fund’s investment objective is to employ an indexing investment approach that seeks to track the NCREIF Fund Index – Open End Diversified Core Equity (the “NFI-ODCE Index”) on a net-of-fee basis while minimizing tracking error. There can be no assurance that the actual allocations will be effective in achieving the Fund’s investment objective or delivering positive returns.  It is not possible to invest in an index. You cannot invest directly in an index and unmanaged indices do not reflect fees, expenses, or sales charges.

The ability of the Fund to achieve its investment objective depends, in part, on the ability of the Adviser to allocate effectively the Fund’s assets across the various asset classes in which it invests and to select investments in each such asset class. There can be no assurance that the actual allocations will be effective in achieving the Fund’s investment objective or delivering positive returns. Limited liquidity is provided to shareholders only through the Fund’s quarterly repurchase offers for no less than 5% of the Fund’s shares outstanding at net asset value. There is no guarantee that shareholders will be able to sell all of the shares they desire in a quarterly repurchase offer. The first repurchase offer following the Conversion is expected to occur in February 2024. 

An investment in shares represents an indirect investment in the securities owned by the Fund. The value of these securities, like other market investments, may move up or down, sometimes rapidly and unpredictably. The Fund is “non-diversified” under the Investment Company Act of 1940, and therefore may invest more than 5% of its total assets in the securities of one or more issuers. As such, changes in the financial condition or market value of a single issuer may cause a greater fluctuation in the Fund’s net asset value than in a “diversified” fund. The Fund is not intended to be a complete investment program.

The Fund is subject to the risk that geopolitical and other similar events will disrupt the economy on a national or global level. For instance, war, terrorism, market manipulation, government defaults, government shutdowns, political changes or diplomatic developments, public health emergencies (such as the spread of infectious diseases, pandemics, and epidemics), and natural/environmental disasters can all negatively impact the securities markets.

The Fund will concentrate its investments in real estate industry securities. The value of the Fund’s shares will be affected by factors affecting the value of real estate and the earnings of companies engaged in the real estate industry. These factors include, among others: (i) changes in general economic and market conditions; (ii) changes in the value of real estate properties; (iii) risks related to local economic conditions, overbuilding, and increased competition; (iv) increases in property taxes and operating expenses; (v) changes in zoning laws; (vi) casualty and condemnation losses; (vii) variations in rental income, neighborhood values, or the appeal of property to tenants; (viii) the availability of financing; (ix) climate change; and (x) changes in interest rates. Many real estate companies utilize leverage, which increases investment risk and could adversely affect a company’s operations and market value in periods of rising interest rates. The value of securities of companies in the real estate industry may go through cycles of relative under-performance and over-performance in comparison to equity securities markets in general.

A significant portion of the Fund’s underlying investments are in private real estate investment funds managed by institutional investment managers that comprise the NFI-ODCE Index (“Eligible Component Funds”). Investments in Eligible Component Funds may pose specific risks, including: such investments require the Fund to bear a pro rata share of the vehicles’ expenses, including management and performance fees; the Adviser and Sub-Adviser will have no control over investment decisions may by such vehicle; such vehicle may utilize financial leverage; such investments have limited liquidity; the valuation of such investment as of a specific date may vary from the actual sale price that may be obtained if such investment were sold to a third party.

Additional risks related to an investment in the Fund are set forth in the “Risk Factors” section of the prospectus, which include, but are not limited to the following: convertible securities risk, correlation risk, credit risk, fixed income risk, leverage risk, and risk of competition between underlying funds.

Investors should consult with their selling agents about the sales load and any additional fees or charges their selling agents might impose on each class of shares.

The Accordant ODCE Index Fund is distributed by ALPS Distributors, Inc (ALPS). Accordant Investments LLC is not affiliated with ALPS.