These Conversions Typically Shrink Revenue By 63 Percent
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Tuesday, May 21, 2024

These Conversions Typically Shrink Revenue By 63 Percent

Fundsters, beware expectations of quick revenue increases after transforming closed-end funds into open-end ones. So says new research from a consulting ally to asset managers.

Last week, Michael Page, research associate at Fuse Research Network, unveiled new Fuse research on CEF conversions. The folks at the Boston-based consulting firm looked into 37 CEFs conversions from 1997 to 2023, conversions where the CEFs transformed into traditional open-end mutual funds or into ETFs, "often to satisfy activist investors."

"Beware! Converting CEFs to an open-end fund can lead to lower revenue," Page warns.

Page reveals that, three months post-conversion, the average open-end successor to a CEF is generating an average of 63 percent less revenue. The converted funds' AUM also drops an average of 38 percent in those three months, while fees drop by an average of 35 percent.

"To stem outflows post-conversion to an open-end funds, fee waivers are often implemented," Page writes. "While partially effective, these waivers signifcantly reduce revenue, sometimes more than if no waivers were implemented."

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