Expert views
Ben Seager-Scott, senior research analyst at Bestinvest, says:
“If funds become too big for their market and style, they lose the ability to be able to effectively implement their investment views because the portfolio becomes restrained in its ability to buy and sell in sufficient quantities. Such constraints can harm the performance of the fund, which is bad for everyone involved, existing clients and the fund manager alike. As a result, I am very much in favour of managers being pro-active in managing their fund size to protect investors.
“With investments flows continuing to favour a relatively small number of big names, there is every likelihood that we will see a number of groups looking to stem flows in to their funds. Managing this process can be quite delicate, it is essential that when groups look to control their flows, they communicate clearly, engage with investors and treat participants fairly.”
Darius McDermott, managing director of Chelsea Financial Services, says:
“Generally we are supportive of soft-closures as they are put in place to help managers maintain performance. They can continue to run money as per their investment process and are not forced to invest in companies – such as small cap managers having to go up the cap scale – and are therefore beneficial to existing investors.
“What seems to happen in the majority of cases though is that the fund is reopened at a later date as it has either suffered redemptions and there is room for more money, or the manager gets comfortable with a larger amount of assets to run.”
Ben Willis, investment manager and head of research at Whitechurch Associates, says:
“Soft closing usually penalises potential new investors by levying an initial charge on new investor monies. This basically deters any new investors entering the fund.
“However, existing investors can still top-up positions without incurring the initial charge and so can continue to invest within the fund as per usual.
“However, Aberdeen and First State should be graded as a ‘hard’ soft close, they have effectively deterred new investors and existing investors by levying an initial charge on all new monies.
“Therefore, if you are invested already and do not want to add to your position – no problem. However, it is a problem for us as we run discretionary model portfolios, and for fund of fund managers, as any new monies will incur an initial charge.
“This invariably means that we have to sell out of our entire position and look for an alternative (as we have done with First State Greater China, First State Indian Subcontinent and Aberdeen Emerging Markets).”
