How does a tender offer fund provide liquidity in alternative investments, and how does it differ from an interval fund?

Tender offer funds and interval funds both provide periodic liquidity for portfolios holding illiquid alternative assets, but they differ in the legal framework governing redemptions. Understanding these structures is increasingly important as alternatives democratize beyond institutional investors.\n\nTender Offer Fund:\n\n- Organized as a closed-end fund registered under the Investment Company Act of 1940\n- The board of directors decides whether and when to conduct a tender offer\n- Tender offers are discretionary -- the fund is not legally required to offer any specific redemption frequency\n- Typical cadence: quarterly, but can be suspended entirely during market stress\n- The fund specifies the percentage of shares it is willing to repurchase (commonly 5-25% of outstanding shares)\n- If requests exceed the offer amount, redemptions are prorated\n\nInterval Fund:\n\n- Also a closed-end fund under the 1940 Act, but with a specific regulatory framework\n- The fund must make periodic repurchase offers at predetermined intervals (quarterly, semi-annually, or annually)\n- Minimum repurchase amount: 5% of outstanding shares per interval (set in the fund's prospectus)\n- The commitment to periodic repurchases is binding -- it cannot be suspended at the board's discretion\n- Shareholders know the redemption schedule before investing\n\nKey Differences:\n\n| Feature | Tender Offer Fund | Interval Fund |\n|---|---|---|\n| Redemption obligation | Discretionary | Mandatory |\n| Board authority | Can skip or modify offers | Must honor stated intervals |\n| Investor certainty | Lower -- depends on board decision | Higher -- schedule is binding |\n| Liquidity management flexibility | Greater for the manager | More constrained |\n| Regulatory requirements | General 1940 Act rules | Specific Rule 23c-3 compliance |\n| Typical repurchase amount | 5-25% per offer | 5-25% per interval |\n\nWorked Example:\n\nWhitmore Real Assets Fund (tender offer fund) and Greystone Private Credit Fund (interval fund) both hold illiquid assets. During a credit market dislocation:\n\n- Whitmore's board suspends the quarterly tender offer to avoid forced selling of illiquid real assets at distressed prices. Investors cannot redeem.\n- Greystone must conduct its scheduled quarterly repurchase of at least 5% of shares, potentially forcing the manager to sell assets into a weak market or hold significant cash buffers.\n\nInvestor Implications:\n\nTender offer funds provide managers more flexibility but leave investors with less redemption certainty. Interval funds guarantee periodic access but may force suboptimal portfolio decisions. Investors should evaluate their own liquidity needs and understand that in both structures, redemption amounts may be prorated if demand exceeds supply.\n\nExplore semi-liquid alternative structures in our CFA Alternative Investments course.