Risk & Liquidity

1) How do interval funds compare to BDCs or tender-offer funds?

• Interval Funds (closed-end, continuously offered): Provide periodic repurchases (typically quarterly) of 5–25% of shares at NAV. Daily pricing, limited liquidity via scheduled windows; suitable for semi-liquid alternatives.
• Tender-Offer Funds (closed-end): Discretionary tender offers (often quarterly/annual); board decides amounts. Less predictable than interval funds; can gate or prorate.
• BDCs (Business Development Companies): Invest in private loans/equity of middle-market firms.
  • Listed BDCs: Exchange-traded; daily liquidity via market, but share price can deviate from NAV (discounts/premiums).
  • Non-traded BDCs: NAV-based with periodic repurchase programs subject to caps and suspensions.
    Key contrasts: predictability of exits (interval > tender), market-price volatility (listed BDCs highest), and degree of board discretion (tender/non-traded BDCs).

2) What is redemption friction, and why does it matter?
“Redemption friction” is any constraint, delay, or cost when exiting: lock-ups, notice periods, gates, proration, exit fees, in-kind distributions, or suspensions. It matters because:

• Drives cash-flow planning and emergency liquidity.
• Reduces sequencing risk (forced selling at bad times) if managed well.
• Affects portfolio construction (how much you can commit to illiquids vs. maintain in liquid sleeves).
• Influences client experience and expectations—fewer surprises, fewer behavioral mistakes.

3) How do RIAs mitigate downside in a liquidity crunch?

• Laddered liquidity: Mix daily-liquid ETFs/T-Bills, semi-liquid funds, and locked vehicles; stagger redemption windows.
• Cash & lines: Maintain cash buffers and access to lines of credit (prudently sized) to bridge timing gaps.
• Pacing & commitments: Commit capital gradually; avoid front-loading vintages; stress-test for denominator effect and redemption spikes.
• Secondaries & transfers: Build relationships to sell LP interests or negotiate partial exits if needed.
• Terms & governance: Prefer funds with transparent gates/proration, fair-value policies, and investor-friendly side-letter protections.
• Client policy: Pre-agreed liquidity policy, realistic timeframes, and proactive communication to reduce panic redemptions.