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.
April 2026 / Page 2
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