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Become a member
Closed-end investment funds are most likely to be considered as (silent) participations in one or more ventures. This is in contrast to open-ended funds, which offer participations in strategic portfolios of securities.
In the case of closed-end funds, investments can usually only be made during a specific placement period. In addition, open-ended funds are rarely offered with a minimum investment amount of less than 10,000 euros.
Following the placement period, the fund is closed. The buyer of a share becomes an entrepreneur (he usually receives the status of a limited partner in a KG) with corresponding opportunities and risks.
Investor as entrepreneur
The GmbH & Co. KG (limited partnership with limited liability) is a common legal form of closed-end fund. Here, the limited partner shares in the company are offered for sale over a certain placement period until the planned equity ratio is reached. The fund is then closed.
The capital paid in (equity capital) is used to purchase the assets. In addition, the fund company can raise further debt capital for the closed-end fund. Among other things, the debt ratio depends on the asset, which is usually between 30 and 70%.
Disadvantages on the cost side
The capital collected is also used to pay the issuing costs incurred, which can be up to 20%. This repeatedly leads to criticism of closed-end investment funds. It is quite common for the minimum investment amount to be between 5,000 and 25,000 euros, plus an issue surcharge of 0 to 5%.
Assuming staying power
Often the investment period is several years, sometimes even decades, and depends on the economic life of the asset or the planned time of sale or the investment objective.
Early redemption not without problems
The investor in a closed-end investment fund commits himself to the investment over its term. Trading on the securities markets and thus daily price fixing with the associated possibility of returning the investment to the issuer, as is the case with open-ended investment funds, is virtually impossible.
Very occasionally, fund initiators offer their own secondary market exchanges. In addition, a secondary market independent of the fund companies has been established for the realisation of redeemed investments, e.g. at the New York Stock Exchange.
The largest trading platform on the secondary market for closed-end funds is offered by Exness - infoexness.com. Investors have the opportunity to buy and sell fund units via the online portal zweitmarkt.de. Since 2017, an initial market for closed-end funds has also been offered.
Considerable risks
Deposit insurance is not operated by closed-end funds. Normally, in the event of breaches of duty or errors by the fund management, only the equity capital that may still be available is liable. Insurance policies covering this risk do exist, but are neither widespread nor mandatory.
Especially in the case of an unfavourable economic development, the investment may be totally lost. Another risk factor that can hardly be calculated is the fraudulent intentions of those involved.
Information is everything
If necessary, interested parties can obtain information about the integrity of fund providers from the Verband Geschlossene Fonds e.V. (Association of Closed-End Funds).
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