Interval Funds Charge Big Fees. Vanguard Is Looking to Challenge That.
Aug 06, 2025 02:30:00 -0400 | #Private Equity #Funds
Vanguard is joining with Wellington Management and Blackstone to launch their first interval fund. (Hannah Beier/Bloomberg)
Competition on Wall Street is a good thing.
The news that Vanguard is joining with two other marquee money managers—Wellington Management and Blackstone—to launch their first interval fund is exciting. In May, the trio filed a prospectus with regulators to launch the WVB All Markets fund. Fees haven’t been disclosed yet, but given that most interval funds charge exorbitant ones, the entrance of low-fee giant Vanguard is welcome.
Interval funds don’t have a specific investment strategy, but rather a unique structure that typically allows investors to redeem 5% of a fund’s assets once a quarter. This enables fund managers to invest in illiquid assets without having to worry about investors exiting en masse and forcing the manager to sell securities at distressed prices. Interval funds are accessible to retail investors for minimum investments as low as $1,000. They can invest in private equity, venture capital, private real estate, and private debt—all previously the domain of institutional or wealthy investors.
But Wall Street tends to gouge investors whenever there’s a limited supply of a product. Of the 307 interval fund share classes currently available, the median fund’s total expense ratio is 3.02%, according to Morningstar. That includes the interest costs of leverage, which interval funds often use to amplify returns. Even excluding leverage, the median ratio is still a high 2.18%. Given that funds often employ private-equity/debt managers accustomed to charging 2% of fund assets plus 20% of profits, that might seem reasonable, but not to retail investors used to index funds charging as little as 0.03%.
Yet Vanguard execs would be the first to admit that indexing doesn’t work with private assets. “With interval funds, lots of academic studies, including our own research, have pointed to this notion that particularly in private [equity and debt], manager selection matters a ton,” says Dan Reyes, global head of Vanguard’s portfolio review department. “So if you’re going to have exposure, it’s really about having some of the best managers in those asset classes.”
The 6 Largest Interval Funds
Interval funds charge high fees. Competition is coming.
| Fund / Ticker | Morningstar Category | YTD Return | 3-Year Return | 5-Year Return | Fund Size (billion) | Net Expense Ratio* | Management Fee* | Adjusted Expense Ratio Without Leverage Cost |
|---|---|---|---|---|---|---|---|---|
| Cliffwater Corporate Lending / CCLFX | High Yield Bond | 5.4% | 11.3% | 10.6% | $30.5 | 3.61% | 1.00% | 1.54% |
| Cliffwater Enhanced Lending / CELFX | Nontraditional Bond | 6.6 | 12.1 | N/A | 6.3 | 2.87 | 0.95 | 2.00 |
| CION Ares Diversified Credit / CADEX | Bank Loan | 4.7 | 9.4 | 8.8 | 4.9 | 7.13 | 1.81 | 4.25 |
| Carlyle Tactical Private Credit / TAKAX | Nontraditional Bond | 3.6 | 9.8 | 9.1 | 4.3 | 5.80 | 1.27 | 3.72 |
| Apollo Diversified Real Estate / GIREX | Real Estate | -0.4 | -2.4 | 4.8 | 3.8 | 2.48 | 1.50 | 1.91 |
| Bluerock Total Income+ Real Estate / TIPRX | Global Real Estate | -0.6 | -8.2 | 2.2 | 3.7 | 3.34 | 1.50 | 1.96 |
Note: *The management fee is the base fee managers charge without any additional leverage or other costs. The prospectus expense ratio includes those costs. Returns as of Aug. 1; three- and five-year returns are annualized. N/A=Not applicable.
Source: Morningstar Direct
Theoretically, illiquid assets should offer a return premium for investors being stuck in them. “Private-credit asset managers who we talked to maintain that there is a premium” of between one and two percentage points, says Brian Moriarty, a principal on Morningstar’s fixed-income strategies team . But his research indicates that before deducting any fees or incorporating any leverage, there was little difference between private-credit interval funds and public bank loan mutual funds and exchange-traded funds. “At that level, the income generated by the different investments actually looks surprisingly similar,” he says.
However, after incorporating leverage, interval funds have beaten traditional loan and high-yield bond funds, as they’ve had about 1.3 times exposure on average to such debt in a rising market, Moriarty says. The problem is they will also have that exposure in a falling one. Yet one can easily see the appeal of interval funds like the $31 billion Cliffwater Corporate Lending (ticker: CCLFX), which has a 10.6% five-year annualized return, besting every open-end loan mutual fund. It has a 3.61% expense ratio, including leverage costs, per Morningstar.
Interval funds can create the illusion of having almost no volatility because their securities aren’t publicly traded and subject to the market’s whims. Important measurements of risk-adjusted returns like Sharpe ratios are thus useless, Moriarty says.
All of which are reasons to celebrate major, trustworthy managers entering the interval game. In April, Capital Group, the behemoth manager of American funds, launched Capital Group KKR Multi-Sector+ (MSPEX), partnering with private-equity/credit specialist KKR. Although not a purely private-debt fund—with 40% typically in private credit—it has a much more reasonable expense ratio of 1.03%.
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