Tuesday, January 12, 2010

The Cost of Success

Not long after I commented that the TFS Market Neutral Fund was at an all time high the fund has decided to institute a "hard close". The close is going into effect on 22nd January.

A soft close is where a fund only accepts new investments from existing investors. The Colonial First State Developing Companies and Future Leaders Funds (both small cap Aussie stocks) are soft-closed funds. Under a hard close the fund does not accept new investments from existing investors either. In this case dividend reinvestment and some other exceptions are allowed.

The reason funds close to new investment is that the managers decide that increasing the size of the fund further will have negative effects on performance. Funds with sustainable good performances often end up closing to new investment. It is an indicator that the managers care about performance. This is much more common in the hedge fund world than in the mutual fund world. It's usually small cap or other specialised funds that are likely to close due to limited investment capacity.

It's a pity though that I won't be able to put more money into this fund in future.

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