Reviewing the comments on the website leads me to believe that there is some hesitation by some to own senior securities (preferred stocks and baby bonds) of non traded Closed End Funds. I can understand the hesitation, most of which stems from a lack of understanding of some of those company’s that issue preferred stock as leverage for the fund. We have all been conditioned to watch prices of common shares of closed end funds as an indicator of the general health of company and thus the health of our preferred shares and related dividends and obviously we can’t do that with a non traded fund.
In particular, for us, this pertains to the preferreds issued by the Priority Income Fund and the new issue from Eagle Point Institutional Income Fund–both which are non traded funds. In this case both company’s are ‘interval funds‘. Interval funds are non publicly traded funds that sell shares continuously through investment advisors that make ‘tender offers’ monthly or quarterly to purchase a percentage of their shares from holders. These periodic ‘tenders’ are meant to provide a modest level of liquidity to investors.
I note that my research shows there are 92 non traded interval funds in existence.
Why non traded and why interval? These funds are meant to provide access to sometimes illiquid securities–i.e. real estate related investments etc. While the Priority Income Fund and the Eagle Point Institutional Income Fund are focused on the ownership of CLOs they are able to invest elsewhere in investments which are not liquid. Additionally non traded closed end funds often have ‘suitabilty’ restrictions, thus they are not suited for public trading.
The sale of common shares of non traded funds on a continuous basis is made at the net asset value of the shares—and the tender offers to buy shares periodically is made at net asset value. Of course when one buys shares through their investment advisor they may well pay a higher price – i.e it includes a commission (or load) of sorts.
The good part of these funds is that they file all their reports and information with the SEC so we have access to information continually (not daily, but at least monthly). These are not non reporting funds, just non traded. This is NOT a situation similar to AmTrust Financial where they do not file their financials with the SEC ever.
I own 2 issues of Priority Income Fund term preferreds and feel totally comfortable with monthly updates. Like any other CEF I want them to maintain a high asset coverage ratio – Priority is now at 320% (6/30/2024) which provides safety for senior security holders.
So I never recommend securities to anyone so this is not a recommendation to buy anything–but I don’t let the non traded status of a closed end fund deter me from a purchase of a senior security if it meets my investing needs.
