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How can fund soft-closures be better communicated?

by Eleanor Lawrie on Feb 13, 2014 at 14:20

How can fund soft-closures be better communicated?

As fund buy lists become more concentrated, the number of ‘soft-closures’ has risen. While vital to protect the feasibility of some strategies, many fund buyers are taking issue with how this is communicated.

Most investors have at least one fund that they would love to buy but is ‘soft-closed’, that is, unavailable for new business because it has reached the size that the asset manager deems appropriate.

Taking the decision to turn down inflows takes restraint by the manager and should be applauded, as it means they are considering the needs of existing investors and seeking to maintain the fund’s original investment style.

But it is not always clear what a group means when it talks about soft-closing a fund – for example, whether it involves additional charges or the fund’s removal from platforms.

Stephen Peters, an investment analyst at Charles Stanley, notes soft-closures are becoming more prevalent.

‘The fact that the wealth management industry is increasingly working off preferred lists means the funds are likely to close quicker than they have done in the past because of the wall of money that is going into them,’ he said.

Peters says it is ‘incumbent on the industry to recognise good managers early’. He believes that for fund selectors such as himself, soft-closures are communicated well enough.

But Jason Hollands, managing director of investment broker Bestinvest, believes the problem is that the phrase is used as a blanket term by fund management groups.

‘The problem is the term is a bit of a catch-all for varying measures. We prefer a clear signal that a fund will seek to limit inflows at a future capacity level,’ he said.

He argues that wealth managers are being put in an ‘awkward spot’, in which they are expected to unofficially enforce the closure of a fund.

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1 comment so far. Why not have your say?

A C Wiltshire

Feb 13, 2014 at 16:53

Perhaps soft closures could be defined as 1/ Sales only and 2/ Limited access.

The later perhaps further split into A/Existing investors only, B/ Higher charges and or C/ Points of access.

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