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CLOSED-END FUNDS: A PRIMER
A closed-end fund is typically an investment vehicle that is public and raises a fixed amount of capital. The fund is then structured, and shares are sold like stocks on a stock exchange. In a closed-end fund, the fund manager raises capital during an initial phase of capital raising. This can take six months to two years, depending on the manager. Once this initial phase is closed, no more shares will be created. At that point, the only shares available for purchase will come from existing investors selling their shares.
held for extended periods of time. Because of this, you will find the bulk of institutional real estate funds are, in fact, closed-end funds.
Investors tend to enter a closed-end fund during the capital raising period, before any investing has taken place. Then everyone purchases shares at the same price. The typical buy-in for these funds can be $5 million, $10 million, or even $20 million each. Immediately after the allotted fund raising period, the investment phase kicks in. At the end of the investment phase, which is also predetermined — say, after five years or so — the fund will be liquidated. On that day, every investor will get their pro rata share of the proceeds. However, fund managers will sometimes choose to leave the investment period open-ended, with no predetermined end date.
Share prices will fluctuate and change because the market value of invested assets will change over time.
In the wide world of real estate,
If investors in a closed-end fund want to liquidate their investment, either partially or fully, they will need a willing buyer.
closed-end funds are a lot more common than other types. This is particularly true in high-cost property
A closed-end fund gets its name because of its distinct phases of investment. Once the initial allotted shares are sold during the capital raising phase, the fund moves to the investment phase and is basically closed to new investors. Buying and selling of existing shares, however, can still take place.
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