Closed-ended funds provide one of the best structures to invest in emerging markets, according to Da...
Closed-ended funds provide one of the best structures to invest in emerging markets, according to David Bliss, director at Lazard Asset Management.
According to Bliss, the capital structure of closed-ended funds offers a number of advantages to both investment managers and investors. He said: "The advantage it gives fund managers is it allows them to enhance the returns they can give to their shareholders."
He said this was particularly the case for volatile markets, and emerging markets were a good example. He said: "The majority of money has always gone into the big sister of the investment trust industry, the open-ended industry. But when you are in a situation of volatile or high risk markets, what you tend to find is it's a feast or famine. The money is actually trying to flow into the marketplace at a time when the assets are rising."
Bliss said when a huge amount of money flowed into the market, open-ended funds were placed in the situation whereby assets were diluted. He said when money was then pulled out, the investment managers were then forced to sell assets.
In comparison, Bliss said closed-ended vehicles offered a number of benefits both for the fund and the investor. He said in terms of the fund, the positives included not having to manage cash flow, the use of gearing, tax efficiency and the ability to buy illiquid and unquoted securities. In addition, managers of closed-ended funds could hedge if their mandate allowed and take a longer-term view and realise value.
Bliss added the benefits for the investor included the expertise of a dedicated manager, daily liquidity for unquoted and illiquid investments, diversification, and an independent board to oversee the manager and structure.
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