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Rating:Closed-Enders Suffer as Money Fund AUM Boom Not Rated 0.0 Email Routing List Email & Route  Print Print
Friday, November 28, 2008

Closed-Enders Suffer as Money Fund AUM Boom

by: Sean Hanna, Editor in Chief

Even as asset flows have returned to money market funds, some closed-end funds are suffering, reports the WSJ. The paper's Fund Track focuses on the health of the estimated 640 closed-end funds with some $200 billion of AUM (that figure is down from an estimated $300 billion a year ago). The tough times come just a year after 22 closed-end funds IPO'd in 2007. Now, though, the paper predicts "more mergers" and "perhaps, some liquidations" driven by declining assets and shareholder activism to eliminate discounts.

The paper also highlights Nuveen's use of variable-rate-demand preferred shares that it created as an alternative to auction-rate preferred shares in response to the liquidity evaporation last February.

That freeze forced some funds to give up on using leverage. Since then the IPO pipeline has frozen and roughly 45 percent of the $64 billion in auction-rate preferred shares have redeemed or announced plans to.

Closed-End Fund Association spokesperson Brian Smith also predicts that the use of leverage to enhance return will return. "'Leverage' is a dirty word now. It won't be forever," he told the paper. "The opportunity to enhance return is going to be huge."

Meanwhile, the WSJ also documents the quick turnaround in money market funds. During the week ending Tuesday, iMoneyNet's Money Fund Report found net new investment into money funds of $37.97 billion. Total money funds assets hit a record $3.634 trillion even as rates fell. Taxable funds claim record assets of $3.140 trillion. 

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