The fund manager gains by having more business certainty because they don’t experience outflows. And investment wise, they do not have to process investor flows each day and they can be genuinely long term investors.
But, most importantly, they can avoid becoming forced sellers of illiquid investments. This is a real benefit over open ended funds – we genuinely fear for corporate bond, small cap or direct property funds if they experience outflows in a down market.
When we weigh up all the pros and cons of ITs, the main con we see is leverage. We suspect advisers would not suggest their clients borrow money to invest and ITs often do just that.
And the main pro, we think, is the liquidity benefit, which should protect investors from the damaging effect of selling illiquid investments during a bear market.
Advice wise, we favour both open and closed ended funds, but lean towards open ended funds more often than not. However ITs are increasingly on the table as we see continued price momentum in illiquid asset classes.
Rory Maguire is chief executive of Fundhouse