Investors Need Real Talk About Interval Funds
Stressed interval funds have been in the headlines lately, but prorated withdrawals have always been a part of the bargain.
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Reckoning? What reckoning?
Late last month, Harrison Street Real Estate’s VCMIX fund began a first-of-its-kind intraperiod auction process designed to ease redemption bottlenecks that have followed the interval fund for years. The novelty of the auction drew headlines, but Harrison Street is far from the only manager prorating shareholder withdrawals in 2026, per Morningstar research. The trend has sparked a broader discussion about whether investors and their advisors truly understood what they were buying while collectively rushing into semiliquid vehicles in recent years.
“We’ve all heard the common narrative of yield-chasing investors trapped in illiquid funds and advisors regretting a pitch they didn’t understand,” Cion Investments CEO Michael Reisner said. “It doesn’t match reality, though.”
Words Matter
Particularly problematic is the increasing use of the term “gating” in conversations about semi-liquid funds, Reisner said.
“Gating, properly understood, is what happens when an open-ended fund manager slams the door on redemptions to halt a run,” he said. “Think of the UK property fund suspensions after Brexit or the money market gates of 2008. What’s happening in non-traded business development companies and interval funds today is the opposite.”
From day one, these vehicles were engineered with quarterly redemption windows, generally capped at 5% of net assets. In other words, any “gates” that exist in this market are down (and disclosed) before the funds ever accept investors.
“Calling this ‘gating’ is like objecting to a rule that was clearly posted before the game began,” Reisner said. “[In any case], a genuine crisis of confidence would show up as a drop-off in new commitments. That hasn’t happened.”
By the numbers:
- The semiliquid market grew from $126 billion in 2020 to nearly $535 billion by the end of 2025, per Cion.
- Institutional investors committed at least $16 billion to North American direct lending funds just last quarter, marking the second-strongest quarter in four years for an interval fund structure that comes with strict liquidity limits.
Retail investors show some signs of pulling back, per Morningstar, but institutional investors clearly remain confident in interval funds.
Investor Protection. While it’s been maligned by some frustrated investors, the 5% quarterly cap exists to protect all investors, not just the ones redeeming. Without it, a manager facing a surge of redemptions might be forced to dump valuable assets at distressed prices into a thin market, harming the investors who stayed. “It’s a feature, not a bug,” Reisner said. “These products are built for a multi-year horizon, and where that’s understood, there’s no reckoning.”
