What Is a Closed-End Management Company?

Breaking Down Closed-End Management Company

The Investment Company Act of 1940 regulates closed-end managment companies. Closed-end management companies specialize in the management of publicly-traded closed-end funds. Closed-end funds are pooled fund investments that can be managed to a wide array of strategies. These funds issue a predetermined number of shares in an initial public offering.

Closed-End Funds

Closed-end mutual funds benefit from pooled fund investing and seek to obtain efficiencies through pooled management and operational economies of scale. Similar to other product offerings in the market, closed-end mutual funds can be managed to a range of different investment objectives and strategies. They can offer income-focused strategies that make regular distributions from income-producing investments.

Closed-end funds have many differences from open-end funds managed by open-end management companies. Closed-end funds do not offer a range of share classes. Closed-end management companies issue a fixed number of shares of closed-end funds to the market through initial public offerings on financial market exchanges. Closed-end management companies do not allow for purchase and sale directly from the management company. Closed-end fees are less complicated. Closed-end management companies usually do not partner with intermediaries and distributors for closed-end fund transactions. Therefore, they do not require sales loads or include distribution fee expenses.

Pricing comparisons for closed-end mutual funds differ from open-end mutual funds. Closed-end management companies calculate a daily accounting net asset value (NAV) at the end of each trading day. Since closed-end funds trade on exchanges, investors can buy and sell the funds at the exchange’s market value. As an exchange-traded closed-end fund, the product’s market value will differ from its accounting NAV. Closed-end management companies can partner with calculation agents to report an indicative NAV which helps funds to trade in closer proximity to their accounting NAV.

Closed-End Fund Investments

The Closed-End Fund Center provides data on the best performing closed-end funds in the market. As of January 2021, the ASA Gold & Precious Metals fund managed by Merk Investments reported the best one-year performance return. At 57.26%, the fund significantly outperformed other market alternatives. The fund seeks to invest at least 80% of its assets in companies engaged in the exploration, mining or processing of gold, silver, diamonds or other precious metals. The fund had $459.3 million under management.