Closed-End Funds Present Opportunities

As concerns over hedge fund liquidity and transparency grow, and retiring baby boomers look to diversify their investments, money is flowing to closed-end funds. Job opportunities are following the cash.

The combined assets of U.S. closed-end funds was $312.41 billion in the quarter ending March 2007, compared to $259.65 billion in the quarter ending March 2005, according to research published by the Investment Company Institute, the national association of the investment company industry. Such performance means from product fund managers to analysts, job prospects at closed-end funds are strong.

The association notes there were 652 closed-end funds at the end of the first quarter of 2007 versus 625 in March 2005. The funds' total assets increased $14.31 billion in the year between the first quarter of 2006 and the same period of 2007. Equity funds propelled the boost, with assets rising by $14.67 billion, to $136.70 billion. (During the same period, bond fund assets dropped by $357 million, to $175.71 billion.)

Those looking to work at a closed-end fund can expect to find themselves at one of two types of investment firms: the very small or the very large. As Chris Wloszczyna, spokesman for the Investment Company Institute, observes, closed-end funds generally fall into two categories: funds at small, individual shops, or those at larger asset management companies.

"There's a demand for a number of reasons," says Gregory Neer, research analyst for Stifel, Nicolaus & Company, a full-service brokerage and investment banking firm. "There's a rapidly growing pie for the aging demographic, and closed-end funds are great for income-oriented investors. People are simply looking to diversify their income sources."

However, Neer adds the market remains volatile, and not all of the current credit concerns have been resolved. In addition, "tax law season is soon approaching, and there are new and untested strategies out there." Still, he sees a lot of potential for the sector. Considering the good buzz and money moving into the sector, those currently working in - or looking to work - at closed-end funds can expect opportunities to continue for the short-term.

Says Neer: "The closed-end fund structure will attract a lot of attention going forward, and we'll attract new asset managers who haven't been in the closed-end structure before."

As investors' concerns on hedge fund transparency and liquidity grow, closed-end funds will gain an even greater appeal. That's when "traditional money managers will look at the closed-end fund structure," Neer believes.