Does anyone know anything about starting a closed-end fund?
books, websites, pros, cons?
books, websites, pros, cons?
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Closed-End Funds?
- Thread starter mattjclark
- Start date
Just a note. We've talked about starting a hedge fund and touched on starting a mutual fund on other threads. I doub't very few members of Elite Trader have the resources to start a fund and even fewer have the resources to start a mutual fund or closed-end fund. The legal framework and initial costs of starting a mutual fund or closed end fund would exceed 100K+ and you would have to set aside several millions of dollars for marketing unless you were backed by a major mutual fund family . In these
tough market conditions many mutual funds will close or merge if conditions stay the same.
A closed end fund is a publicly traded investment company that offers shares usually through an initial IPO. Shares of closed end funds trade on NASDAQ/NYSE/AMEX . The proceeds of the IPO are used by the closed end fund to invest in the markets. Many closed end funds invest in specialized areas like technology, convertible securities or foreign stocks. Closed end funds differ from mutal funds in that they have a fixed number of shares , therfore closed end funds can trade at a discount to their NAV(net asset value) , due to supply and demand for the fund shares. As an example if XYZ closed end fund has a NAV of 50 and it invests in the Japanese market(which is now out of favor),
the XYZ fund may be trading at 40, which is a 20% discount to the funds NAV. The theory is that this discount will be made up over time or if the Japanese market recovers, the shares may trade at a premium to NAV. However, many closed end funds trade at a discount for years. If the fund board of directors choose to convert to a mutual fund(open ended), the fund will by definition trade it it's NAV(the fund repurchases shares at NAV) and the 20% discount will be made up.
One of the guru's of Closed End Funds is Thomas Herzfeld Advisors, he has written several books on Closed End Funds that can be purchased on his website and runs a closed end fund. See his site at http://www.herzfeld.com/ .
Gene Weissman
Lieber & Weissman Sec., LLC
gweissman@stocktrade.net
tough market conditions many mutual funds will close or merge if conditions stay the same.
A closed end fund is a publicly traded investment company that offers shares usually through an initial IPO. Shares of closed end funds trade on NASDAQ/NYSE/AMEX . The proceeds of the IPO are used by the closed end fund to invest in the markets. Many closed end funds invest in specialized areas like technology, convertible securities or foreign stocks. Closed end funds differ from mutal funds in that they have a fixed number of shares , therfore closed end funds can trade at a discount to their NAV(net asset value) , due to supply and demand for the fund shares. As an example if XYZ closed end fund has a NAV of 50 and it invests in the Japanese market(which is now out of favor),
the XYZ fund may be trading at 40, which is a 20% discount to the funds NAV. The theory is that this discount will be made up over time or if the Japanese market recovers, the shares may trade at a premium to NAV. However, many closed end funds trade at a discount for years. If the fund board of directors choose to convert to a mutual fund(open ended), the fund will by definition trade it it's NAV(the fund repurchases shares at NAV) and the 20% discount will be made up.
One of the guru's of Closed End Funds is Thomas Herzfeld Advisors, he has written several books on Closed End Funds that can be purchased on his website and runs a closed end fund. See his site at http://www.herzfeld.com/ .
Gene Weissman
Lieber & Weissman Sec., LLC
gweissman@stocktrade.net
I'm not wanting to open a big time closed end fund in the millions and millions of dollars (with a huge marketing plan and a bureaucratic staff), what I'm looking for is an investment vehicle (which I would run) so that my family and friends can invest in and receive some benefits from my active trading. This fund would only serve the purpose of being a tax vehicle that could be owned through an IRA (allowing the investors to avoid all the short term gains that I incur in daily trading).
I'm not very interested in making money for the general public (sorry, my trading system probably won't work well over $5,000,000), so I wouldn't really want my closed end fund to be traded on an exchange (a great deal more costs that I can avoid).
These are some other reasons that I think a closed end fund might be the vehicle to achieve my goal.
1. Most of my family and friends are not accredited investors, so obviously that removes a hedge fund from possibilities.
2. I've also heard that a closed end fund could go short (where most open ended funds cannot). Shorting is a very big part of my trading, and if I can't short, my returns will be far less.
3. I've heard that closed end funds can go on margin (this isn't that big of deal, but it would be nice to use margin if I wanted)
Thanks for the website, I'll check it out,
Matt
I'm not very interested in making money for the general public (sorry, my trading system probably won't work well over $5,000,000), so I wouldn't really want my closed end fund to be traded on an exchange (a great deal more costs that I can avoid).
These are some other reasons that I think a closed end fund might be the vehicle to achieve my goal.
1. Most of my family and friends are not accredited investors, so obviously that removes a hedge fund from possibilities.
2. I've also heard that a closed end fund could go short (where most open ended funds cannot). Shorting is a very big part of my trading, and if I can't short, my returns will be far less.
3. I've heard that closed end funds can go on margin (this isn't that big of deal, but it would be nice to use margin if I wanted)
Thanks for the website, I'll check it out,
Matt
I think a private investment limited partnership or "hedge fund" is what you are looking for. You can have a maximum of 35 nonaccredited investors. As a hedge fund you would be excluded from the definition of an "investment company" under the Investment Company Act. You definitely want to be excluded as a small operator!
The hurdle will be whether you can accept qualified retirement fund money. If you did, you would have a fiduciary responsibility to invest the fund prudently, which includes diversification. If you want to accept IRA money, you would then be subject to the additional regulations of the Employees Retirement Income Security Act (ERISA). That is another whole can of worms you may have difficulty complying with. Research ERISA thoroughly before taking IRA funds.
The hurdle will be whether you can accept qualified retirement fund money. If you did, you would have a fiduciary responsibility to invest the fund prudently, which includes diversification. If you want to accept IRA money, you would then be subject to the additional regulations of the Employees Retirement Income Security Act (ERISA). That is another whole can of worms you may have difficulty complying with. Research ERISA thoroughly before taking IRA funds.
the best way to trade friends and family money without any hassle(why you would want to trade friends and family money is beyond me.unless you want to lose friends and family.)is to get them to open an account at your broker and you get trading authorization.then you just enter the orders for them.that way you dont have to jump through any government hoops and red tape.
I agree with others. If you want to formalize it a bit then use an LLC but otherwise you can just use this from IB:
Financial Advisor Separately Managed Accounts
Beginning August 1st, Interactive Brokers will offer Financial Advisors the ability to open Separately Managed Accounts for clients. Multiple client accounts may be displayed on a single Trader Workstation, and different wrap fees may be charged to each individual account.
Financial Advisor Separately Managed Accounts
Beginning August 1st, Interactive Brokers will offer Financial Advisors the ability to open Separately Managed Accounts for clients. Multiple client accounts may be displayed on a single Trader Workstation, and different wrap fees may be charged to each individual account.