Closed-ended fund disclosures - IT

Closed-ended fund disclosures

The charges on some of our funds will start to show the cost of holding certain types of investments – namely closed-ended funds. The costs are not new. However, they will now be more explicitly reflected in the ongoing charge figure of certain funds, which invest in closed-ended investment funds. The change is in line with new EU regulations as well as industry transparency initiatives in the UK.

Many of the funds within the BNY Mellon Investment Funds (BNYMIF) range domiciled in the UK and BNY Mellon Global Funds (BNYMGF) domiciled in Ireland invest in close-ended investment funds.

How are they used?

Professional investors like fund managers invest in closed-ended funds for a variety of reasons such as diversification and opportunity. Such funds can sometimes offer a specialised expertise. As such managers may use these funds to gain swift and efficient access to a particular asset class. For example, say a manager wants exposure to wind farms. Buying an investment trust invested in a wind farm is a very different proposition from owning a developer or construction company of renewable energy.

Much like cash or other investable assets, closed-ended funds are a tool which fund managers can utilise to try and generate greater returns.

What’s changing?

The ongoing costs incurred when holding closed-ended investment funds will now be included in the ongoing charge figure (OCF). This is already the case where a fund holds another open-ended collective investment scheme.

Does this mean I am paying more?

No. These are not new charges. The cost of such investments was reflected in the performance. Now the impact of these investments is visible within the OCF.

In addition, it is worth noting your fund manager invests in such vehicles as a way of adding to returns. Although much like any investment they may make, there is no guarantee they are additive to returns.

Does my fund invest in closed-ended funds?

There are many funds across our UK and Ireland-domiciled fund ranges, which hold closed-ended funds. However, each features different holdings and the times in which they are invested will vary, as will the percentage amount. This is no different than any other holding within a fund.

For more information, please contact your regular sales contact or client services.

Open-ended v closed-ended

Closed-ended collective investment schemes, such as investment companies, are a type of fund typically listed on the stock exchange; they can be bought and sold the same way the shares in an individual company can. The difference is these vehicles are often pooled funds, meaning they invest in things such as the shares of companies or fixed income (corporate or government debt – bonds). They can also invest in other asset classes, some of which are more specialist in nature – like property or renewable energy.

As closed-ended investment funds are generally bought and sold the same as any individual company share is, other collective investment schemes – such as open-ended funds – can buy them.

BNYMIF and BNYMGF are both “open-ended”. Like closed-ended funds, they are a type of collective investment scheme in that they invest in other assets. However, in an open-ended fund, an investor can buy or redeem shares at any time – directly from the fund. With a closed-ended structure, an investor generally needs a buyer (or seller) to redeem or purchase shares. As such, closed-ended funds often invest in more illiquid or specialist assets.