Cathie Wood's New Fund Targets Illiquid Assets, Limits Exits

Cathie Wood is upping her big bet on disruptive tech companies via a new fund targeting less-liquid markets with limits on how quickly investors can exit.

Wood’s firm ARK Investment Management — whose lineup of exchange-traded funds is reeling in the U.S. rout in growth stocks — filed on Thursday for a closed-ended “interval” fund that would expand her flagship strategy into harder-to-trade assets.

The ARK Venture Fund will follow the same “disruptive innovation” investment theme as the famous ARK Innovation ETF (ticker ARKK), but target “illiquid securities and securities in which no secondary market is readily available, including those of private companies,” the filing said.

The fund is structured with lock-up provisions that will help the famous Wall Street manager to keep more control over investor cash moving in and out of the strategy.

It’s a telling move by the star money manager. Despite a woeful run of performance that has seen ARKK tumble more than 50% from its peak, investors have stayed remarkably loyal.

The new fund will be able to tap into this fan base and invest in companies earlier in their market cycle. It also sidesteps worries about concentration, liquidity and scale that dogged its ETFs after they lured billions.

“This makes a lot of sense as the structure will give Cathie and Co. the freedom to really explore the less liquid areas of the market without having to worry about capacity issues like they would in an ETF,” said Eric Balchunas, a senior ETF analyst with Bloomberg Intelligence. “It’s also smart because it is serving up something Vanguard doesn’t and so can be used to complement the increasingly passive core of a portfolio.”

A spokesperson for ARK confirmed that the filing had been made, but declined to comment further while the fund undergoes the review process at the U.S. Securities and Exchange Commission.

Interval funds are one solution to a developing dilemma for asset managers. In an era when bonds are less effective at diversifying portfolios and returns are expected to be weak across major assets, investors are increasingly interested in alternatives like real estate or private credit.

Using an ETF or open-ended mutual fund — which trade daily — to access such assets creates a liquidity mismatch when managers need to raise cash for any redemptions.

By offering redemptions of between 5% and 25% of the fund’s shares just once a quarter, the ARK Venture product should make any mismatch easier to manage. The firm expects to offer 5% per quarter, according to the filing. If the demand to exit exceeds the repurchase offer, shareholders may only be able to withdraw a portion of their investment.