First published in the Financial Times.
Are open-ended funds an underused opportunity? Where does the opportunity lie? Here, we analyse the pros and cons of closed vs open-ended funds
When it comes to investment funds, structure matters. Closed-ended funds are becoming more popular with investors but whilst these funds remain a trusted and highly regarded option, there is another avenue worth considering: open-ended funds, which offer a level of flexibility that still fits well with today’s evolving investment landscape. In fact, they could be regarded as an under-utilised opportunity.
These structures offer a high degree of flexibility, also operating under a strong regulatory framework, and providing a versatile alternative to the traditional closed-ended model. With recent regulatory developments creating new possibilities, particularly for UK-based investors, it is time to reassess the potential of these agile and innovative investment vehicles.
Why Open-Ended Funds Deserve More Attention
While closed-ended funds command the larger share of assets, open-ended funds provide a suitable alternative worth considering. Their adaptability and regulatory strength make them a valuable option for investors seeking flexibility. For example, Guernsey’s Class B open-ended funds provide an agile and well-regulated alternative.
Liquidity is a key differentiator between open and closed-ended funds. Open-ended funds provide specified periodic liquidity rules, allowing investors to enter and exit at defined intervals, whereas closed-ended funds generally lock in capital for the entire fund lifecycle which can be for a lengthy defined period, typically between five and 10 years. Where a closed-ended fund does provide liquidity through a listing or on a Bid/offer basis, the shares are often traded at a discount to NAV. This distinction makes open-ended funds particularly appealing to investors who value the ability to adjust their holdings in response to market movements.
The Class B open ended fund is an exceedingly agile fund which can be exposed to any type of asset class from unlisted pre IPO tech stocks to theatre productions around the world. The offering prospectus gives the rules of the fund, which do not need to follow a strict set of overarching laws thus allowing increased flexibility.
An Efficient Investment Solution
Investment strategies are rarely one-size-fits-all. Closed-ended funds have been a firm favourite for good reason. But investment markets evolve, and so do investor needs. For high-net-worth individuals in the UK, open-ended funds offer an efficient vehicle for managing their investments. With upcoming changes to the UK’s non-domicile rules, investors are looking to open-ended funds as a more attractive solution to structuring concerns. Class B schemes are particularly well-suited to this evolving landscape. Their flexible structuring options enable them to accommodate both individual and collective investor objectives, making them a versatile solution amid regulatory and market shifts. While closed-ended funds remain an excellent choice for those seeking long-term stability, the agility of open-ended structures ensures investors have the flexibility to respond to new opportunities and challenges.
Keeping an Open Mind
Guernsey has long been a attractive jurisdiction for fund structuring, known for its strong regulatory framework and deep industry expertise. As of Q4 2024, Guernsey’s total funds under management and administration reached £290.1 billion, reflecting both quarterly and annual growth. This steady increase demonstrates the island’s continued appeal to investors who value a well-regulated environment which is open to innovation. The financial services regulator in Guernsey is recognised as pragmatic, willing to discuss new ideas though its innovative Soundbox feature making the approval of the funds easier.
Closed-ended funds will undoubtedly remain a key pillar of Guernsey’s success, as a trusted and highly regarded investment structure, and they will continue to be a mainstay of institutional and private wealth portfolios. But the debate is not about choosing one structure over the other. Instead, it is about recognising the role each can play in a well-rounded investment strategy and the potential for greater use of open-ended alternatives should not be overlooked.
With the infrastructure already in place, Guernsey is well positioned to support investors who wish to explore a broader range of fund structures. As investors seek more adaptable solutions to meet their changing needs, now could be the time to embrace the full potential of open-ended funds. The opportunity exists, it is simply a matter of making better use of it.
