April 18, 2016

By -

Jamie Green

Traditionally, investors in both open-ended (no fixed end date) and closed-ended (fixed end date) Managed Funds have had to accept Liquidity Risk as being inherent in their decision to invest.

Liquidity Risk is most noticeable when large-scale withdrawals are requested by Unitholders during times of financial uncertainty and the value of unit redemptions exceeds available cash of the Fund. A classic example of this nightmare for investors was during the GFC.

 In some instances, a Managed Fund may need to liquidate assets at unfavourable prices or the fund manager may freeze withdrawals until such time as they have spare cash to permit a return of capital.

For Managed Fund investors, this can translate to considerable write-downs on the value of their capital and once a withdrawal request is processed, the selling strike price may not be what the investor considers “fair and reasonable.” 

For Unitholders who wish to transact/sell their units in a Managed Fund in both normal or distressed conditions, will discover that PrimaryMarkets is the alternate liquidity channel they have been seeking that best supports capital value.

PrimaryMarkets empowers Unitholders to receive a price that best reflects their expectation of a wider market valuation and/or best matches the underlying net asset value. 

Further, the Seller Member can screen or vet interested Buyers thus creating an effective, strategic position whilst mitigating against traditional Liquidity Risk or in a trade of price discovery. 

Units listed on PrimaryMarkets, also gives the Managed Fund prominence and a point of distinction. Promoting secondary liquidity of units through a transparent marketplace will increase the value and attractiveness of a Fund’s units over time.

 Managed Funds Unitholders who list their holdings on PrimaryMarkets are given an opportunity to sell as they desire to a wide choice of professional, sophisticated and wholesale Buyers.

 An estimated 3.4 million U.S. households owned closed-end Managed Funds. (Investment Company Institute, June 2014)

 Further, there are approximately 610 closed-ended Managed Funds across Australian and New Zealand. (Morningstar, January 2016)

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