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How can fund soft-closures be better communicated?
by Eleanor Lawrie on Feb 13, 2014 at 14:20
‘We prefer soft-closures through tangible measures, such as increased initial charges, over incidences where some groups pursue a more softly, softly approach of ceasing marketing, not making managers available for meetings, stopping adding funds onto new platforms and de facto encouraging intermediaries not to give them business. This puts wealth managers in the awkward spot of being asked to discourage clients from investing in a fund that they could still buy,’ Hollands said.
Ben Seager-Scott, senior research analyst at Bestinvest, agrees the basic fact that a fund is to soft-close is generally made clear. But he says things can start get murky when groups attempt to explain the exact form this will take.
‘Often the communication coming out is not clear, not that they are doing the soft-closure, but communicating the details of what is being done, how and who is affected,’ he said.
Seager-Scott thinks this is particularly relevant when it comes to large emerging market funds, which are often recipients of ‘hot money’ as sentiment around the asset class shifts. For example, in 2013 First State and Aberdeen Asset Management both soft-closed some of their top performing emerging market offerings over capacity concerns.
In April of last year, Aberdeen imposed a 2% initial charge on its £3.7 billion Emerging Markets fund, while in the same month First State announced it would close Jonathan Asante’s €4.9 billion First State Global Emerging Market Leaders fund to new investors from September 2013.
Seager-Scott points out soft-closure is ‘not like flipping a switch’ but a slow process that cannot be instantly reversed if a fund’s circumstances change.
‘Last year, there was a huge rally and everyone was piling in. Both groups were trying to avoid soft-closure, but they had lots of attention and lots of money coming in. Then you had all this money starting to move out with the asset allocation decision to move out of emerging markets,’ he said.
‘But funds can be difficult to reopen. It is not a rapid process.’
Funds close too late
Ben Gutteridge, head of fund research at Brewin Dolphin, suggests that, if anything, funds don’t always soft-close as quickly as they should.
‘Undoubtedly there are funds that are a victim of their own assets, and that is something we watch for,’ he said. ‘On balance, funds will soft-close too late. That is the commercial nature of the industry, but the fact they are doing it is still a positive.’
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