If you’ve invested in the Finite Solar Finance Fund (SOLRX) already, or are doing your preliminary due diligence, you probably noticed that SOLRX expects to provide investors with quarterly liquidity opportunities.
That means that once every three months, you can generally expect the option to sell shares back to the Fund.
SOLRX trades differently from common stocks and bonds because it’s structured as a closed-end interval fund. Interval funds, along with the more popular structures like mutual funds, ETFs, and closed-end funds, are a type of fund structure registered under the Investment Company Act of 1940 (the ’40 Act). You can learn more about the differences between interval funds and other ’40 Act funds here.
One of the most important aspects for prospective interval fund investors to consider is their somewhat unique approach to liquidity. You should carefully read the fund’s prospectus before making any investment, but we’ve put together the highlights here to save you some time.
Liquidity, generally, refers to how easy it is to quickly sell something at its fair market price.
Public equities are considered liquid because you can hop on an investment app and sell your shares for an accepted (and automatically determined) market price almost instantly.
A piece of real property, on the other hand, is less liquid because selling it typically involves working with realtors, appraisers, the buyer, and financing partners to agree on a fair value before executing the sale.
Investors in interval funds like SOLRX should consider their investment to be less liquid because shareholders can’t redeem their shares more than once per quarter. While that’s less liquid than daily redeemable securities, the loans the Fund may invest in can have total durations up to 30 years.
When you buy interval fund shares, you’re buying them directly from the fund that issues them at a net asset value (NAV) that an independent valuation agency has verified as reflecting the true value of the fund’s underlying assets divided by the total number of outstanding shares..
Just like you bought shares directly from the fund, you also sell your shares directly back to the fund. Most interval funds offer these repurchase opportunities quarterly, but all funds are required to offer repurchases on regular intervals – hence the name “interval fund.”
Typically, funds will offer to repurchase between 5% and 25% of total outstanding shares. In most cases these repurchase offers are not oversubscribed, meaning investors receive their full repurchase request. In the rare event that a repurchase offer is oversubscribed, the interval fund will fulfill repurchase requests on a pro rata basis, and the investor can opt to participate in subsequent repurchase offers until they’ve sold their desired number of shares.
To sell your shares, you’ll receive advance notice of an upcoming repurchase offer from the fund. All repurchase offers are also publicly filed on each fund’s SEC filings page under Form N-23C3A.
The process is straightforward:
- Complete the form verifying how many of your shares you’d like the fund to repurchase.
- Submit the form to the stated address ahead of the submission deadline.
- The repurchase offer will tell you the date the NAV of your tendered shares is determined, and the date you can expect to receive your money.
Why can’t I sell my shares whenever I want?
Unlike mutual funds and ETFs, interval funds can invest nearly all of their capital into illiquid alternative assets (“alternatives“) that don’t trade on stock exchanges. These types of investments could be ownership in private companies, rights to the rent and capital appreciation from a commercial high rise, or in the case of SOLRX, loans used to develop residential and commercial solar power projects in the U.S.
Institutional investors have long pursued exposure to alternatives – increasingly so in recent years – because of their potential for more attractive yield than bonds and stock dividends can provide, and their low correlation to public markets (meaning less exposure to volatility).
These types of investments require sophisticated due diligence and aren’t easy to unwind quickly, so the SEC usually requires that investors have some kind of accreditation before investing.
Interval funds, however, do not have an accreditation requirement. That means if you’re not particularly wealthy but you want to invest in alternatives, interval funds are one of your easiest options to make that type of investment.
That’s why we structured SOLRX as an interval fund. Most loans used to develop solar power are private loans, and the interval fund structure allows anyone – not just accredited investors – to invest in them. Providing capital for solar loans is a direct way to participate in financing our transition to a cleaner economy.
You should treat an investment in SOLRX as a long-term investment, and remember that it’s not designed as a complete investment program, like your employer-sponsored 401(k) might be.
Remember that the complete details of SOLRX liquidity opportunities can be found in the fund’s prospectus. If you’re looking for a deeper dive on interval fund liquidity generally, you’ll find it here.