The Cred | Tender Offer Funds: Structure Meets Strategy Authored by Jay Alicandri, Thomas Friedmann and David Marcinkus April 2026
Table of Contents
Page I. Summary ....................................................................................................................... 1
II. Introduction .................................................................................................................. 1
III. Background.................................................................................................................. 2
IV. Disclosure ................................................................................................................... 3
V. Protection of Non-Redeeming Shareholders.................................................................... 4
VI. Conclusion .................................................................................................................. 5
i
Tender Offer Funds: Structure Meets Strategy
April 2026 / Authored by Jay Alicandri, Thomas Friedmann and David Marcinkus
I. Summary
Liquidity-matching: Tender offer structure matches the nature of the underlying assets.
Built-in flexibility: Board’s ability to exercise judgment can protect all shareholders during periods of stress. Robust disclosure: Investors are clearly informed of liquidity terms (investments in private assets should not be understood to be liquid). Private credit funds: Investment objective to generate income and distribute such income to shareholders.
II. Introduction
Over the past decade, asset managers have sought to expand investor access to private markets assets, such as private credit, real estate, infrastructure and other illiquid assets, within the regulatory framework of the 1940 Act. Two vehicles have emerged as the principal means of accomplishing this: interval funds and tender offer funds. 1 This paper discusses tender offer funds and concludes that their structural features align well with the liquidity profile of private market investments. This paper also suggests that the repurchase framework of tender offer funds protects the interests of all shareholders and not only those seeking to redeem their shares. In particular, the discretionary repurchase framework allows tender offer funds to balance providing liquidity for redeeming shareholders with preserving value for long-term investors. Tender offer funds are closed-end investment companies, including business development companies, whose common stock is not traded on a national securities exchange. Unlike traditional listed closed-end funds, tender offer funds generally conduct continuous offerings of shares at net asset value (NAV) in an offering registered under the 1933 Act which allows for access by retail investors. Shareholders are offered limited liquidity periodically through repurchase offers conducted at NAV. These funds are primarily distributed through financial intermediaries and wealth management platforms and provide individual investors with access to private market strategies that have historically been available only to institutional investors and the very wealthy.
1 Ultimately, the most suitable structure for a fund should be determined in the fiduciary judgment of the fund’s investment adviser and board based on all relevant factors, which may include, among others, the fund’s investment objective, strategy, anticipated portfolio and liquidity profile, offering methodology, and target investor market. Accordingly, there is no “one-size-fits-all” structure, and the full array of options, including tender offer funds, interval funds, listed closed-end funds, and other potential structures as appropriate, should be considered.
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As of December 31, 2024, tender offer funds held approximately US$113 billion in assets under management across 113 funds. 2 In 2020, there were only 78 tender offer funds with approximately US$34 billion assets under management. 3 The growth of these funds reflects a long-term trend in the asset management industry toward strategies providing access to private markets assets. The relative growth of private asset funds also reflects a notable decline in the number of publicly listed companies in the United States, which has fallen by roughly 50% since its peak in the late 1990s, from approximately 8,000 listed companies to fewer than 4,000 today. 4
III. Background
The 1940 Act creates a dichotomy between open-end funds and closed-end funds. Open-end funds issue redeemable securities and must satisfy redemption requests upon demand, generally within seven days. 5 As a result, shareholders of open-end funds effectively hold a put option that entitles them to receive the NAV per share of their holdings in cash at any time, regardless of market conditions. Because mutual funds must be able to provide investors with immediate liquidity, Rule 22e-4 under the 1940 Act limits their holdings of illiquid investments to 15% of net assets and requires the implementation of a liquidity risk management program. 6 Closed-end funds, on the other hand, do not issue redeemable securities; rather, they make repurchase offers at the discretion of their boards under Section 23 of the 1940 Act. Because tender offer funds are not required to provide immediate liquidity, the 1940 Act does not impose liquidity constraints on their investments. In 1993, the SEC adopted Rule 23c-3 under the 1940 Act, creating the interval fund structure. Interval funds are closed-end funds that are required to make periodic repurchase offers to shareholders at NAV pursuant to a predetermined schedule. Tender offer funds provide investor liquidity through issuer tender offers conducted pursuant to Section 23(c)(2) of the 1940 Act and the tender offer rules under Exchange Act Rule 13e-4 and Regulation 14E. 7 These offers are initiated by the fund’s board, which considers (1) whether making a tender offer at that time is in the best interest of the fund and its shareholders, and (2) if so, on what terms. In practice, tender offer funds generally intend to conduct quarterly offers of between 2 Investment Company Institute, 2025 Investment Company Fact Book at 10 (available at https://www.ici.org/system/files/2025-05/2025-factbook-quick-facts-guide.pdf) 3 Id. 4 World Federation of Exchanges; Center for Research in Security Prices (CRSP). The number of domestic listed companies on U.S. exchanges peaked at approximately 8,000 in the late 1990s and had declined to fewer than 4,000 by the mid-2020s. 5 Section 22(e) of the 1940 Act. 6 Investment Company Act Rule 22e-4(b)(1)(iv). An illiquid investment is generally defined as one that cannot be sold or disposed of in the ordinary course of business within seven days at approximately the fund's carrying value. 7 Section 23(c)(2) of the 1940 Act provides that no registered closed-end company shall purchase any securities of any class of which it is the issuer except pursuant to tenders, after reasonable opportunity to submit tenders given to all holders of securities of the class to be purchased. Regulation 14D and Regulation 14E of the Exchange Act govern the disclosure and timing framework for tender offers generally; Rule 13e-4 and Schedule TO govern issuer tender offers specifically.
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2.5% and 5% of outstanding shares. These features allow tender offer funds to remain fully invested if circumstances warrant. The valuation of tender offer fund portfolio assets is governed by Rule 2a-5 under the 1940 Act and, for financial reporting purposes, by ASC 820 (Fair Value Measurement). Rule 2a-5, adopted by the SEC in December 2020, establishes the standard for determining the fair value of fund investments. It permits boards to designate a fund’s investment adviser as the “valuation designee,” which then becomes responsible for performing fair value determinations subject to board oversight. 8 ASC 820 establishes a three-level hierarchy for classifying fair value measurements based on the observability of the inputs used to value an asset: Level 1 (quoted prices in active markets), Level 2 (observable inputs other than quoted prices) and Level 3 (unobservable inputs, including management's own assumptions). Tender offer funds invest predominantly in Level 3 assets under the ASC 820 hierarchy, meaning the fair values of their assets are determined using valuation models and techniques that rely on inputs not readily observable in active markets. Unlike exchange-traded securities, whose prices are updated continuously, Level 3 asset valuations may not change on a daily basis.
IV. Disclosure
Tender offer funds prominently disclose their liquidity terms and valuation policies to investors in their offering materials. It is important for investors and financial intermediaries to understand that the liquidity of a fund’s underlying assets effectively dictates such fund’s liquidity terms. The form follows the strategy. Tender offer funds are also required to provide additional information to investors each time a repurchase offer is made. Repurchase offers by tender offer funds require the filing of Schedule TO with the SEC, together with delivery of an Offer to Purchase and Letter of Transmittal to shareholders. The Schedule TO framework ensures that shareholders receive comprehensive, current information about the fund’s financial condition and the specific terms and purpose of each repurchase offer at the time it is made. Among other things, Schedule TO requires disclosure of: The percentage of shares sought, the offer price, the source and amount of repurchase proceeds, as well as any arrangements made in connection with, and the purpose of, the tender offer; Audited financial statements for the prior two fiscal years and unaudited financials for the most recent quarter; and
8 Rule 2a-5 under the 1940 Act, Good Faith Determinations of Fair Value , Investment Company Act Rel. No. 34128 (Dec. 3, 2020), effective September 8, 2022.
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Any material changes to previously disclosed information, which must be promptly filed as amendments.
V. Protection of Non-Redeeming Shareholders
Tender offer funds are not obligated to make repurchase offers on a predetermined schedule. When a tender offer fund decides whether to authorize a repurchase offer, it has the opportunity to take into consideration the best interests of the fund and its shareholders given the particular circumstances at the time. Importantly, funds are able to consider the long-term interests of non- redeeming shareholders, whose fund interests are affected by the terms and timing of any repurchase activity. The board is empowered to exercise its judgment to pause repurchase offers, to offer to repurchase fewer shares than it had previously, or, if circumstances warrant, to offer to repurchase more shares than had been its typical practice. In this way, the tender offer fund structure provides flexibility to evaluate a full range of factors each time it determines whether or not to authorize a tender offer. This flexibility can be especially useful in times of market dislocation, or in circumstances where the fund may benefit from retaining capital, such as in anticipation of a strategic transaction. Recent market developments illustrate the practical utility of this discretionary framework. In several instances, funds have limited or paused repurchases, reflecting their ability to manage repurchase activity in a manner designed to protect the interests of all of a fund’s shareholders during periods of market stress. Generally, such funds have merely been adhering to the redemption terms clearly disclosed in their offering documents. With respect to private credit tender offer funds, the ability to pause redemptions contributes to their resiliency during market dislocations. In addition, it is important to note that many investors are primarily attracted to private credit tender offer funds because of the income they generate. Even if a fund determines to pause repurchase offers, shareholders will generally continue to receive distributions of income. 9 Additionally, tender offer funds tend to invest in the types of private assets where it is important for advisers to cultivate and maintain long-term relationships with portfolio companies, financial sponsors and other market intermediaries, the benefits of which accrue to the funds and their shareholders over time. In private credit, in particular, advisers develop long relationships with borrowers, which allows them to understand their borrowers’ businesses and financing needs across market cycles. The availability and stability of capital that tender offer funds provide directly support these relationships. Tender offer funds and their advisers may take these factors into consideration when determining the scale and timing of any particular tender offer. The discretion granted in deciding when and how much liquidity to offer to fund shareholders is not a design flaw, but a fundamental element of tender offer funds.
9 Under Subchapter M of the Internal Revenue Code, a regulated investment company must distribute at least 90% of its investment company taxable income (including dividends and interest, but generally excluding net capital gains) to shareholders each taxable year in order to avoid entity-level federal income tax on the distributed amounts.
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VI. Conclusion
The growth of tender offer funds reflects growing demand among all classes of investors for access to private market investment strategies that previously were available only to institutions or the very wealthy. This demand is ultimately being driven by structural changes in the U.S. capital markets, as private assets have grown to represent a larger share of the investable universe. The discretionary repurchase feature of tender offer funds is well-suited to the fundamental economics of illiquid private market investing.
Authors
Jay R. Alicandri Partner New York +1 212 698 3800 jay.alicandri@dechert.com
Thomas J. Friedmann Partner B oston +1 617 728 7120 thomas.friedmann@dechert.com
David Marcinkus Partner
Washington, D.C. +1 202 261 3484 david.marcinkus@dechert.com
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