Interval funds and tender offer funds look nearly identical from the outside. Both are registered closed-end funds. Both hold illiquid strategies. Both provide periodic liquidity at NAV. Both are commonly described as semi-liquid.
The difference is a single word, and it is the most important word in the comparison: discretion.
The distinction
An interval fund adopts a fundamental policy under Rule 23c-3 committing it to repurchase a stated percentage of shares at stated intervals. The commitment is in the fund charter and cannot be changed without a shareholder vote. The repurchase offers are an obligation.
A tender offer fund makes no such commitment. It provides liquidity by conducting issuer tender offers under the tender offer rules of the Securities Exchange Act, and each offer is a decision — the board determines whether to conduct one, when, and for how much.
In practice, most tender offer funds conduct offers on a regular cadence, commonly quarterly, and describe that cadence in their offering materials. The cadence is real and managers take it seriously, because a fund that disappointed investors on liquidity would struggle to raise more.
But it is a practice, not a promise. And the distinction matters precisely in the situations where it is tested.
Why the structure exists
If a committed schedule is better for investors, why does the discretionary structure exist at all?
Because the commitment has a cost, and the cost is borne by the portfolio.
An interval fund must maintain liquid assets sufficient to meet its repurchase offer from the notification date. That obligation forces it to hold liquidity — cash, short-term instruments, or liquid securities — against every scheduled offer. Liquid assets earn no illiquidity premium. For a fund whose entire proposition is harvesting that premium, the liquidity sleeve is a permanent drag.
A tender offer fund carries no such standing obligation and can stay more fully invested. For the least liquid strategies — private equity, secondaries, certain real assets, litigation finance — managers frequently judge this the right trade, and they are not obviously wrong. The investor receives a slightly weaker liquidity commitment in exchange for a portfolio that is not permanently holding cash.
There is a second reason. Many tender offer funds limit investment to accredited investors or qualified purchasers. Where a fund is designed for a sophisticated investor base rather than for broad retail distribution, the case for a hard structural commitment is weaker, and the flexibility is more defensible.
What discretion means in practice
The honest way to think about this is to ask when a board would actually decline or reduce an offer.
Not in ordinary conditions. In ordinary conditions the offers proceed as described, requests fall below the offer amount, and the structure behaves as investors expect.
A board would reduce or decline in conditions of portfolio stress, valuation uncertainty, or heavy redemption demand — because repurchasing at a NAV the board is unsure of, or selling assets into a bad market to fund exits, damages the remaining shareholders.
That reasoning is sound. It is also exactly the point: the discretion is most likely to be exercised in the circumstances where investors most want to exit. Both things are true simultaneously — the board would be acting properly, and the investor would not get their money.
An interval fund committed schedule does not fully escape this either. Its offers are obligatory but capped and prorated, so oversubscription still leaves investors short. The difference is one of degree — a floor that exists versus a floor that is discretionary — rather than a difference between liquidity and its absence.
Comparing the two
| | Interval fund | Tender offer fund | |—|—|—| | Repurchase basis | Fundamental policy under Rule 23c-3 | Board discretion, under the tender offer rules | | Obligation | Committed | None | | Amount | Stated percentage, prorated if oversubscribed | Determined per offer, prorated if oversubscribed | | Liquidity assets | Must be maintained against offers | No standing requirement | | Eligibility | Typically broad | Often accredited or qualified purchaser | | Typical strategies | Credit, multi-asset, real estate | Less liquid: private equity, secondaries, real assets |
What to examine
The actual offer history. This is the whole ballgame for a tender offer fund. How many offers has the fund conducted, at what size, and has it ever reduced, delayed, or skipped one? A fund with a long record of consistent offers has demonstrated something about how it exercises discretion. A short record has not — favourably or unfavourably.
Proration history. Whether offers have been oversubscribed, and by how much.
Stated intentions versus obligations. Read the offering document carefully on what the fund says it intends to do versus what it is required to do. The gap is the discretion.
Valuation governance. Since investors transact at NAV, the same fairness concern applies as in any evergreen structure: a stale mark transfers value between exiting and remaining shareholders.
Eligibility and minimums, which are often higher than for interval funds.
Any lock-up or early repurchase deduction.
Board composition, since the board exercises the discretion.
Choosing between the structures
The question is not which structure is better in the abstract. It is which trade fits the investor.
An interval fund suits an investor who wants the strongest available structural liquidity commitment in a semi-liquid vehicle, accepting that the fund carries a permanent liquidity sleeve and that offers are still capped and prorated.
A tender offer fund suits an investor who wants exposure to the least liquid strategies, who is genuinely long-horizon, and who accepts discretion in exchange for a more fully invested portfolio — and who has looked at the manager actual record of exercising that discretion.
The mistake in either case is the same: treating a semi-liquid vehicle as a liquid one. The mechanics of how repurchases actually run are covered in interval fund liquidity mechanics.
This guide is educational and general; it is not investment, tax, or legal advice. Fund terms differ materially; review the offering documents for any specific fund.
Frequently Asked Questions
What is a tender offer fund?
A registered closed-end fund that provides liquidity by periodically conducting issuer tender offers to repurchase shares, at the board discretion, rather than under a committed repurchase schedule. The board decides whether to conduct an offer, and for how much, each period.
How is a tender offer fund different from an interval fund?
An interval fund adopts a fundamental policy under Rule 23c-3 committing it to repurchase a stated percentage at stated intervals — the offers are obligatory. A tender offer fund makes no such commitment; each repurchase is a discretionary decision by the board conducted under the tender offer rules. In practice many conduct offers regularly, but regularity is a practice, not an obligation.
Are tender offer funds available to all investors?
Not always. Many tender offer funds limit investment to accredited investors or qualified purchasers, because the fund relies on an exclusion that requires it, even though the fund itself is registered under the Investment Company Act. Eligibility varies by fund and should be confirmed from the offering documents.
Why would a fund choose the tender offer structure?
Flexibility. Without a committed repurchase obligation, the fund need not hold liquid assets against a scheduled offer, which allows it to stay more fully invested in illiquid strategies. Managers of the least liquid strategies often prefer it for that reason.
What is the risk of discretionary liquidity?
That the discretion is exercised against the investor when it matters. A board can reduce or decline to conduct an offer, and the circumstances where it might do so — portfolio stress, valuation uncertainty, heavy redemption demand — are the same circumstances in which investors most want to exit.
Sources
- Investment Company Act of 1940, and Rule 23c-3 thereunder (periodic repurchases)
- Securities Exchange Act of 1934, Rule 13e-4 and Regulation 14E (issuer tender offers)
- Investment Company Act of 1940, Sections 3(c)(1) and 3(c)(7)
