How Interval Funds Are Opening Private Markets to Everyone

Private markets are no longer reserved for institutional giants. In this episode, Kimberly Ann Flynn, President of XA Investments, joins host Jim Jockle to explore how interval funds and fintech innovation are unlocking access to private equity, private credit, and real asset strategies for everyday investors.

From inflation protection to diversification and income generation, Flynn outlines the benefits and risks of tapping into private markets, alongside the education, technology, and product innovation making it all possible.

Episode Transcript

James (00:06):
Welcome to Trading Tomorrow navigating trends in
capital markets the podcastwhere we deep dive into
technologies reshaping the worldof capital markets.
I'm your host, jim Jockle, aveteran of the finance industry
with a passion for thecomplexities of financial
technologies and market trends.
In each episode, we'll explorethe cutting-edge trends, tools
and strategies driving today'sfinancial landscapes and paving

(00:29):
the way for the future.
With the finance industry at apivotal point, influenced by
groundbreaking innovations, it'smore crucial than ever to
understand how thesetechnological advancements
interact with market dynamics.

Guest 1 (00:52):
Today's episode is all about a fascinating shift in the
investment landscape the riseof private markets.
As companies stay privatelonger and high growth sectors
flourish outside of publicmarkets, private market
investing is becoming amust-watch trend for
institutional and retailinvestors alike.
We're going to unpack why andhow technology is accelerating

(01:14):
this evolution.
Joining us today is KimberlyAnn Flynn, president of XA
Investments and a partner of thefirm, where she leads all
product and business developmentefforts.
She heads up their proprietaryfund platform and consulting
work, and she's especially knownfor her expertise in closed-end
fund product development.
Kim is a regular speaker atindustry events, covering

(01:35):
everything from interval fundsto alternative investments.
She is a CFA charterholder, amember of the CFA Society
Chicago, and she holds herSeries 7, 63, and 64 licenses.
Kim, welcome to the podcast.

Guest 2 (01:48):
Oh, thanks, jim, I appreciate being on.

Guest 1 (01:51):
Well, you know, let's start with the big picture.
You've argued that privatemarkets are becoming more
central to investmentconversations today.
What's the driver behind that?

Guest 2 (02:17):
Well, there's really two drivers.
So, if you take it from aninvestor's perspective, a lot of
US investors are our portfoliosreflect sort of concentration
in some of the largest stocks inthe US market, and so investors
, I think, were taught a lessonin 2022, when neither stocks or

(02:37):
bonds performed, and if youthink about the classic
principles of portfoliodiversification, it's to have
exposure to a lot of differenttypes of assets that are
hopefully moving in differentdirections when the stock market
corrects.
So I think we've gotten a tasteof 2022 again in the last

(02:58):
couple of months of volatileequity market trading and
alternative investments.
They can deliver on a lot ofdifferent goals.
So if you have private credit,for example, it can deliver on a
retiree's goal for income inretirement.
If you're talking about privateequity, maybe as you're saving
for a second home purchase orsaving for retirement, you want

(03:21):
something with additional upsidepotential, so private equity is
going to bring that.
But then, if you think aboutthe firms that manage private
equity and private credit,there's a lot of motivation that
we see from these moneymanagers who see the individual
investor as a huge opportunity.
So there's a lot of time andattention being spent on

(03:42):
investor education in a way thatthere wasn't five years ago,
and part of that has to do withyou know.
We don't have pensions anymore,and so the responsibility for
saving for retirement is now myown, and so I want opportunities
like endowments or pensionfunds who've long been investing
in things like real estate orinfrastructure or private equity

(04:04):
.
These are opportunities with alot higher return potential.
Some of them there's trade-offs, maybe there's additional risk,
maybe there's a lack ofliquidity, and so that's with
private markets.
That's why that education is soimportant.

Guest 1 (04:18):
Well, there's also been a noticeable trend of companies
staying private longer.
What do you feel are thedrivers behind that shift as
well?

Guest 2 (04:27):
Yeah, well, I mean, we see headlines all the time about
private equity buyers ofprivate companies selling those
companies after five, six yearsto other private equity buyers.
And the reason we're startingto read more about that is
because the IPO markets havebeen, you know, episodically

(04:49):
open and shut, so the capitalmarket windows for these
companies haven't been asavailable or as open.
So I think this is much toinvestment bankers, you know,
chagrins.
They'd love to see more equityIPOs, but the capital market
windows haven't really beenconducive to it.
But there's also fundamentalreasons that companies prefer to

(05:10):
stay private.
So we're seeing a lot of growthhappen in the private phase
because if you're theentrepreneur, the founder of a
business, going public meansyou're going to have quarterly
reporting of earnings.
There's going to be a lot moretransparency and scrutiny around
how you run your business.

(05:31):
So I think a lot of businessowners are saying you know,
we're going to prefer to stayprivate longer.
Private equity is a way for usto get liquidity.
Private credit is also a wayfor us to grow our business.
So there's now ways for thesebusiness owners to accomplish
what they need to grow theirbusiness while remaining private

(05:52):
, and doing so without thatquarterly earnings cadence.
That sort of drives short-termdecision-making.
So I think there's a lot ofreasons that compel these
companies to stay private forlonger, and I don't think
anybody's suggesting that that'sgoing to change too soon.

Guest 1 (06:13):
You know it's funny, I'm an older guy, I remember
back in the day, you know, justto even trade equities I was,
you know.
You looked up your stickerprices in the new stock prices
in the newspaper but thebarriers to entry were
significantly high in terms ofjust opening up a brokerage
account.
So, for investors looking totap into either private equity

(06:35):
or private credit, what are themain strategies for an investor
to gain access?
For an investor to gain access?

Guest 2 (06:42):
What's different today than it was a few years ago?
Five, 10 years ago you neededto be an investor in a private
fund.
Those private funds throw offK-1s for tax purposes, so that's
a pain if you're an individual,even if you're a wealthy
individual.
They also have suitabilityrestrictions and so if you're

(07:06):
not an accredited or a qualifiedclient, you couldn't even get
into some of those private funds.
So you know, if you know yourfinancial advisor, if you have a
lot of wealth, you've probablybeen approached by private
opportunities in real estate orin private equity.
But now these private marketopportunities are accessible

(07:27):
really to everyone, and thereason for that is that they are
now available in an SECregistered product wrapper.
You know it's a similar,similar, but there's differences
.
To a mutual fund or an ETFMutual funds and ETFs are
regulated by the SEC.
To a mutual fund or an ETFMutual funds and ETFs are
regulated by the SEC.
They have independent fundboards that protect shareholders

(07:49):
.
So there's a type of SECregistered fund that's called an
interval fund.
There's about 270 interval andtender offer funds that are
basically open-ended like amutual fund, so they're
available for purchase.
And take private credit, forexample, you can buy a private
credit interval fund.

(08:09):
There's about 90 available inthe market.
You could buy direct lending.
There's a lot of interest rightnow in direct lending because
banks have stepped away fromlending.
You could buy an asset-backedlending fund.
Stepped away from lending, youcould buy an asset-backed
lending fund secured by hardassets.

(08:30):
You could buy a structuredcredit fund.
You could buy a multi-stratcredit fund.
So, partly because the yieldson these private credit funds
are quite attractive relative to, let's say, high yield or
senior loans, you're picking upanywhere from 200 to 400 basis
points of additional yield.
So there's a lot of individualinvestor interest.

(08:51):
Most of these private creditfunds don't have any suitability
restrictions and because it'san SEC registered product, it
produces a 1099.
So for a lot of investors it'san easy way to get private
market exposure.
For a lot of investors.

Guest 1 (09:05):
It's an easy way to get private market exposure.
Let's talk about education as acomponent.
What is being done from thatfront?
If I'm thinking structuredcredit funds or things of that
nature, there are so manychallenges, especially even
those who were quibs during thelast crisis.
What's being done from aneducation front to really open

(09:28):
up these markets more?

Guest 2 (09:29):
Well, so firms like Apollo, one of the leading
institutional alternativemanagers.
They have something calledApollo University.
Apollo, for example, isstarting with financial advisors
, educating the financialadvisors, who will then, in turn
, educate a lot of investorsLike Apollo, blackstone, kkr

(09:55):
they all have developed theserich resources and education for
investors A lot of it'sactually available on their
websites.
Investors a lot of it'sactually available on their
websites.
So there's much moreinformation because these are
effectively, because they're SECregistered products, their
retail facing websites have alot of that education

(10:16):
information.
So if you were a private fundinvestor, think about trying to
find information on a hedge fundor a private equity firm.
Their websites basically have aparagraph about the firm and
nothing else, or it's restrictedaccess.
You can't click into it.
So all of these leadingalternative managers have had to
develop a web presence thatthey didn't have a few years ago

(10:39):
, partly because otherwise, howare they going to serve up some
of those educational tools?
Because it comes in the form ofwhite papers, videos, other
content, as they're trying toeducate, not just on the asset
class If I'm trying to learnabout what is direct lending,
but I'm also still trying tounderstand what is the structure

(10:59):
and how do I get liquidity andthings of that nature?
So there's a lot of education,both on the structure itself,
because it may be new to you,but also on the underlying asset
class and the benefits or risksof that investment.

Guest 1 (11:16):
And how are technology and data platforms helping
unlock these markets forinvestors?

Guest 2 (11:26):
lock these markets for investors Well at the cutting
edge.
There's going to be a lot ofinnovation around access to
these types of funds.
So Hamilton Lane is analternative manager that was
working on a digital share class.
So, just as mutual funds havevarious share classes to offer
their products into differentdistribution channels, a digital
share class or a tokenizedshare class would allow the fund

(11:48):
to be basically sold seamlesslywithout transaction costs.
So there's a lot of innovationthat I think we're going to see,
especially with these privatemarkets funds around
tokenization.
And so we've seen some fintechfirms who've uh launched

(12:09):
platforms, uh democratizedplatforms, if you will, to allow
anyone uh without a financialadvisor, for example, not
everybody has a financialadvisor, so if you want to buy
one, you could go to um,fundrise, yieldstreet, sofi, um,
and it's early days in terms ofsome of that direct to

(12:30):
consumer-consumer availability.
So, for example, I'm a Fidelitycustomer with my retirement
savings.
You can't yet go to Fidelityand just type in the fund's
ticker and buy the fund.
I think as an industry we willget there, but to support what
now?
The market now is 270 fundsbecause it's growing very

(12:51):
quickly.
There were 50 interval fundslaunched last year.
The industry has to play catchup a little bit with respect to
the build out of the operationsand the technology systems, as
you say, to support that levelof growth, but I think we'll get
there soon enough to make itmore open for investors.

Guest 1 (13:10):
And you know, we've also seen a lot of private
equity targeting high growthsectors like cloud, biotech, ai.
You know, are there particularsectors or areas that you're
personally excited about?

Guest 2 (13:24):
Before we did this podcast recording, I was
speaking with one of there's aninterval fund called the Private
Shares Fund, and so they'remaking available basically
employee-restricted shares inthese private companies that we
were talking about, theseunicorns that are staying public
longer.
So there's firms like that thatare opening up access to a

(13:46):
broad, diversified mix ofprivate companies.
I think that's reallyinteresting.
That fund has grown and scaledquite dramatically.
We are seeing one of the trendswe reported on in some of the
research that we do is that AInow as a theme, investment theme
or just in the prospectusdisclosures, it's an area of

(14:09):
interest for some of thesetechnology funds that are coming
to market.
So we are seeing some morenarrow focused AI funds or
technology funds where it's apiece of what they're doing.
So I think there's a lot ofinvestors who are, you know,
looking at ways to play the AItheme, and the public markets

(14:29):
may not be the only way toparticipate, because a lot of
these companies areventure-backed companies and so
you need to get in earlier tobenefit from the growth in the
AI space in the privatecompanies.
So we're seeing someinteresting venture capital
strategies that are just now onfile.
Takes about 6 to 12 months forthese products to launch, but I

(14:52):
think we're going to see more ofthat.

Guest 1 (14:53):
Just out of curiosity, in terms of thematic investing,
are you seeing a spillover inESG as?

Guest 2 (15:00):
well, there's one fund that was launched a couple years
ago that was focused on impactin a lot of different ways, so
it was broadly defined.
I would actually say it'salmost the opposite right now,
just because I think in the USthere's been a step back from
ESG and so we're starting to seeenergy funds come back to

(15:26):
market.
So in the interval fund spacethere really hadn't been
anything dedicated.
So now I think some of theenergy funds that are coming you
know some of them are areenergy transition.
Some of them are are sort ofthe old school energy combined
with energy transition.
So you know it's been a while.
You know advisors had sort of Ithink a lot of investors had

(15:49):
over allocated to energy MLPproducts.
So it's interesting to see ifenergy will make a comeback
under the Trump administration.
I think that's what some ofthese new entrants are thinking.

Guest 1 (16:01):
It's fascinating.
So let's talk about risk.
Liquidity is often a concern inprivate markets.
Obviously, right now we have alot of market volatility going
on in the midst of trade wars.
What should investors keep inmind and how do they look at
risk versus traditional products?

Guest 2 (16:23):
Well, so for anything that's private markets, you need
to think about two importantdifferences between, like, a
daily liquid mutual fund or anETF.
So a private market strategylet's take private equity or
infrastructure.
Those are two good examples,because the assets within those

(16:45):
portfolios are long duration.
You know, a private equityprivate fund typically would
have like a 10-year term.
Infrastructure, thoseinvestment windows are even
longer.
It might be like a 15-year term.
And so with private marketassets, they do bring a lot of
potential return anddiversification benefits, but

(17:06):
the trade-off there is thatthere's a lack of liquidity, and
so sometimes investors talkabout the liquidity premium
associated with investing inprivate markets, but that means
you don't have the sameliquidity and your expectations
should be different when you'rebuying one of these private
market strategies than whenyou're buying an ETF, and I

(17:27):
think that there's a highpreference for liquidity from
daily liquid vehicles.
And so I think it's reallyimportant, before you would
allocate part of your portfolioto private markets, that you
think with a longer investmenthorizon in mind for that segment
of your portfolio.
And so I think it's in sharpcontrast to things like crypto

(17:53):
Crypto, people would argue,might be an alternative
investment.
Even there's gold ETFs for thegold bugs, but those products
are fairly liquid.
Crypto and gold products arefairly liquid, meaning you could
get liquidity within a day ortwo.
These semi-liquid products, theinterval funds that I'm talking
about to these semi-liquidproducts, the interval funds

(18:14):
that I'm talking about, most ofthem just have a quarterly
liquidity window and so, and ifeverybody, let's say you found
yourself in the end of 2008 andeverybody wants liquidity at the
same time, shareholders wouldbe prorated, so you wouldn't
necessarily get the liquidity onthe timetable that you're
thinking about.
So that's really importantbecause, if you think about it,

(18:36):
you own your home.
If you want to maximize theprice of your home when you go
to sell it, you're not going tofire, sell it and sell it
tomorrow.
You're going to hire an agent.
You're going to take two orthree months, whatever it takes,
to get the highest price.
The same thing would be true foran airport in an infrastructure
portfolio or a private companyin a private equity portfolio.

(18:58):
It takes time to realize that.
So the other, besides liquidity, just as I was mentioning,
valuation is an importantconsideration, because valuation
is going to work different withsome of these long duration
assets.
There's the risk that thevaluation might become stale,
and so you want to be thoughtfulas you're evaluating private

(19:21):
market products.
Ask some good questions aboutvaluation frequency, valuation
process, make sure you'recomfortable with that and make
sure you understand when and howyou can get liquidity.

Guest 1 (19:33):
And given the fact that these are long duration assets,
I mean, is there any benefit tohaving an active secondary
market develop?

Guest 2 (19:46):
Yes, I think that this is also an area where, right now
, there's one or two firms isalso an area where right now,
there's one or two firms, onethat is bringing liquidity to
the secondary market fornon-traded REITs.
As you know, real estate hadbeen under a lot of pressure in
2022, 2023.
There's a firm called LotusL-O-D-A-S.

(20:07):
Lotus is providing secondarymarket liquidity for non-traded
REITs, non-traded BDCs, intervalfunds, tender funds.
The good news for interval andtender funds is that, besides
the real estate sector, most ofthe funds are in a very positive
.
You know there's more demand forthe shares of the fund than

(20:27):
there is demand for liquidity.
We monitor that very closely,but there are I think we'll see
because they the Lotus Exchangebrings buyers and sellers
together, and so we need moretechnology solutions to bring
buyers and sellers together,because the market clearing
price for a private equity fundin 2008 may look very different

(20:54):
than it is in 2025.
And so if you're bringing thosebuyers and sellers together in
dislocated markets, you know youcan get the clearing price
that's supportive oftransactions in the market, and
so I think that's important withany product, that's if you're

(21:14):
providing liquidity on aquarterly basis, but I need the
liquidity next week.
One of these secondary marketsfor liquidity would be able to
provide liquidity, likely at adiscount, but at least they're
there as a solution, and I'vetalked with other firms that are
looking at what Lotus is doingand trying to bring buyers and
sellers together, effectivelyarbitraging the difference

(21:39):
between where the market pricemay be and where the NAV of the
fund may be.
But I think it's still earlyand there's room for more in
terms of innovation in that area.

Guest 1 (21:52):
Some people have said, like crypto or other areas.
It's like oh, this is all brandnew and I always sit back and
go no, there's always a process.
Oh, this is all brand new and Ialways sit back and go no,
there's always a process.
And these markets havedeveloped in terms of regulatory
regimes and then moving intoeither OTC, then you get
electronification, et cetera, etcetera, and they follow

(22:15):
patterns.
As it relates to private equityprivate credit here.
As it relates to private equityprivate credit, here, would you
say, reits is the area to watchas the roadmap for the industry
I actually do.

Guest 2 (22:29):
I always say that the interval fund business, which is
hot right now, and all theseasset managers are looking to
launch funds this started 25years ago.
The education started, theproduct structuring innovation
started with non-traded REITs,and so that was what went first,
and I think also many investorstheir first experiences with

(22:53):
alternative investments has beenwith buying a rental property,
buying a piece of land, and sothese are tangible assets and I
think that's why that was anentry, and so what followed the
non-traded REITs has been BDCs,and now there's public BDCs,

(23:15):
non-traded BDCs, there's privateBDCs and business development
companies BDCs.
Those are a financing tool forUS small or middle market
companies to get capital to grow.
It's unique to us in the US,but that's what followed the
evolution of REITs.

(23:36):
Now we have interval and tenderfunds.
Pretty much anything, anystrategy, fits into an interval
or a tender fund.
So that's why you see hedgefund content, you see private
credit, you see infrastructure,you name it.
There's endowment stylestrategies.
Interval funds can really houseanything.

(23:58):
That's private markets, and Ithink that there's still a lot
of growth left, but we're notstarting at ground zero.
We've been building on some ofthose innovations.

Guest 1 (24:09):
And just because you said AI before, I have to ask
how do you see AI playing a rolein the evolution of private
markets, whether it be dealsourcing, portfolio management?
Where is AI slipping in here?

Guest 2 (24:24):
Well, I mean, it's now like the topic of the day, as
maybe ESG was three or fouryears ago.
Every industry conference thatwe attend now, people are
talking about how AI isenhancing the client onboarding
process if you're a financialadvisor, how AI is changing the
sales process if you're a salesmanager at a large asset

(24:49):
management firm.
Ai is changing how we buildproducts, how we structure
products.
It's going to touch everyaspect, every aspect, even if
the investor is not aware thatit's happening.
I think the SEC with ChairmanAtkins he's a big proponent of

(25:13):
AI and crypto, and so I thinkwe're going to see the SEC be
supportive in a way.
Now I think that the SEC isgoing to want to make sure that
asset managers are disclosingthe nature of the use of AI.
A lot of companies, assetmanagers who are worried about
giving away their secret sauce.
They have closed door chat GPTtools, so it's something that

(25:35):
their portfolio managers andanalysts can be comfortable
using and making sure that theirdata doesn't drift out, you
know, isn't educating the AItools outside of their firm.
So we're seeing rapidinnovation and there's going to
be consequences.
There's going to be upsides anddownsides and I think, as an

(25:55):
industry, we kind of have to.
We're in testing mode with someof this stuff.
But I do think that, like youknow, it was just like I was
speaking with my dad last night.
He said somebody at his churchrecommended he read a book and
instead of reading the book hedid a chat, gpt summary, to see
if he actually wanted to spendthe time reading the book.
That's going to be true forinvestment products too.

(26:16):
Right, you're going to drop ina fund.
You're gonna be like well, tellme, summarize.
You know the benefits and therisks of this fund, and so you
know, right now you read a factsheet, maybe you read a
prospectus, but I think thatthere's going to be a lot of
tools that help us makedecisions, um, and hopefully in
a more thoughtful way.

Guest 1 (26:37):
I'll give you one fun little hack.
With with chat GPT that I used.
The other day, I got a piece ofmail and I was like this looks
real but I'm not sure.
So I took a picture of it andhad it, analyzed it and it was
like this is fake.
Here's why.
And when it did all thisresearch, I was like I was.
I was worried for nothing.

Guest 2 (26:55):
You know we're all in it every day.
Every one of us gets a scamrequest.
If it's those stupid toll roadviolation texts, you get one a
week and you think, oh gosh,some of this must be.
It's getting harder to tellwhat's a scam and what's legit.
So yeah, I mean, I think it'slike anything.

(27:16):
But you know, if you can be aninvestor in some of that cutting
edge technology, you knowthere's going to be a lot of
losers in the venture space andAI.
But that's why, when you'reinvesting in venture capital,
you know you want to invest withone of the best, most skilled
venture capital managers.
But they're also basicallyplacing a lot of different bets

(27:38):
right, because not everyinvestment is going to be a
winner.
Basically placing a lot ofdifferent bets right, because
not every investment is going tobe a winner.
So I you know we always saythat manager skill in private
markets is even more importantthan with a mutual fund manager
selection, because the returndispersion, you know, between
the best and the worst mutualfund manager is actually pretty.

(27:59):
It's a pretty tight range,whereas with private markets the
best and the worst there's ahuge, like you know, 10% return
difference between the best andthe worst in private markets.
So manager selection is all themore important when you're
talking about hedge funds andprivate markets, and so you know
.
That's why.
That's why that's importantthat you're investing with a

(28:22):
manager that is time tested, hasa track record, and you can be
comfortable that they know whatthey're doing.

Guest 1 (28:29):
Well, kim, unfortunately we've made it to
the final question of thepodcast.
We call it the trend drop.
It's like a desert islandquestion.
So if you could only watch ortrack one trend in private
markets, what would it be?

Guest 2 (28:42):
Okay, I'm a big fan of real asset strategies and we've
seen a lot of movement becausewe're all facing higher prices
at the grocery store and whatnot.
So inflation is going tocontinue to be top of mind
because we're just at elevatedprices and even if the inflation
rates come down, we're stillgoing to be suffering from

(29:03):
higher prices.
So things like farmlandinvesting, things like
infrastructure investing, whichcan give you yield, but also
inflation protection, I thinkwe're going to see a lot of
demand for those real assetstrategies around the globe,
strategies around the globe andthat's an area where we've seen
some new products get launched,especially in the infrastructure

(29:32):
category in the last year.
But I think we're going to seemore in the way of other
inflationary protected realasset strategies, because I
think that's a gap in mostinvestors' portfolios.

Guest 1 (29:42):
Well, kim, thank you so much for your time today,
Incredibly informative, and it'sa whole new world, so thank you
.

Guest 2 (29:48):
Thanks, Jim.

James (29:57):
Thanks so much for listening to today's episode and
if you're enjoying TradingTomorrow, navigating capital
markets, be sure to like,subscribe and share, and we'll
see you next time.