SEC Moving at a Snail’s Pace, Announces Closed-End Interval Fund to be Launched Soon
- The unlisted interval fund will invest in cash-settled future and will have an initial cap of $25 million
- “A bit of progress” – Crypto Mom and SEC Commissioner Hester Peirce
- Gabor Gurbacs of VanEck doesn't think these will protect investors any better
Dalio Osman Blass, the US Securities and Exchange Commission's Director of the Division of Investment Management in her keynote address at 2019 ICI Securities Law Developments Conference announced that a registered closed-end interval fund going to be launched soon.
Last year, she issued a public letter where she called on the industry to engage in a dialogue on investor protection. She also pointed out the issues that focus on valuation, custody, liquidity, manipulation of the market, and efficiency of the arbitrage mechanism for ETFs presented by such investments.
Funds that are seeking to invest in digital assets have been asked to grapple with these questions before filing a registration statement. The industry she said took the letter seriously and responded with thoughtful and constructive input.
“As a result of this engagement, we are at the point that a registered closed-end interval fund with a bitcoin futures strategy is preparing to launch.”
Nothing New, Same old-Same old?
An interval fund is a type of fund with shares that do not trade on the secondary market but periodically offers to buy back a percentage of outstanding shares at a net asset value (NAV), details Investopedia.
Blass explains that this fund will value its bitcoin futures holdings at daily settlement prices as recorded on a CFTC-registered futures exchange. As for custody, the fund will invest in cash-settled futures as such won’t be facing the challenges that come with direct holdings of crypto assets.
However, Gabor Gurbacs, the digital asset strategist/director at VanEck doesn't think these will “better protect investors.”
Some filed for futures-based Bitcoin ETFs…and were forced to withdraw…wondering if allowing those funds to come to market too would be generally more fair and equitable…? I don’t believe interval funds better protect investors. Guess who filed first among futures filings…
— Gabor Gurbacs (@gaborgurbacs) December 4, 2019
As the interval fund is a closed-end interval one, it will not offer daily redemptions and won’t be “subject to potentially large, unexpected liquidity demands over short periods.” Because it is an unlisted fund, its pricing will not depend on an arbitrage mechanism or market makers either.
The fund will have an initial cap of $25 million. Apart from offering the product only through registered investment advisors, its size and future growth must be limited as well.
Also, the fund has to explicitly make the prominent risk disclosures.