When is the right time to soft close a fund?
Soft closing a fund can be a difficult decision for a firm, according to Lakehouse, but managers need to put their investors’ interest at the heart of the move.
The Lakehouse Small Companies fund soft closed last week at $400 million and head of distribution, Stuart James, said this was to protect the long-term performance of the fund as well as to leave head room for future market growth.
While it was currently still open for existing investors only, it would later be hard closed when assets reached $500 million.
James, who joined Lakehouse last March, said the team had taken the decision based on the fund’s future ability to invest in the small companies in its investable universe. Soft closure of funds was most common in the small cap universe as these companies had smaller market caps but could apply to any type of fund.
“You have to decide at what point would the assets under management impede holding the companies that you want to invest in and how would it impact the liquidity? It also depends on how regularly you trade and how much liquidity you need,” he said.
“Some managers opt for only holding up to 1% of the ASX Small Ordinaries index but I think that is too simplistic.”
He said the tension between the commercial aspects of the business and the management’s desire to achieve good performance could also affect the decision.
“It can be hard for firms to be disciplined and stick to their capacity as the company earns fees based on assets under management. But at the same time, we are aligned to delivering outperformance for our investors and want them to have confidence in us,” James said.
The firm would now focus on promoting its Global Growth fund which launched in November 2017.
The fund returned 32% over one year to 31 December, 2020, versus returns by the Australian small and mid-cap sector of 16%, according to FE Analytics.
AUTHOR
Laura Dew
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