FRM Part II · FRM Exam Part II · The Rise and Risks of Private Credit
A pension fund is comparing an open-ended interval vehicle with a traditional closed-end drawdown fund for a direct lending allocation. Which feature most clearly distinguishes the closed-end drawdown structure?
A closed-end drawdown fund calls committed capital when loans are originated and locks investors in for the fund's term. This aligns the illiquid loan assets with the investors' funding and avoids redemption pressure, unlike open-ended vehicles offering regular redemptions.
- AInvestors can redeem units on demand at daily net asset value
- BCapital is called from investors as loans are originated and is generally locked up for the fund's termCorrect
- CThe manager must hold a large cash buffer to meet redemptions
- DThe fund issues new units continuously at market price
Explanation
Closed-end drawdown funds call committed capital as investments are made and investors cannot redeem early, so lock-up matches the illiquid loans. The other options describe open-ended or semi-liquid structures with redemption features.
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