I think I could understand why closed end fund could reduce concern about redemption. but what redemption really refer to ? and how could it negatively impact the investor? Thanks.
Redemption = investors requesting the fund to redeem (exchange) their units for cash. During a downturn there is can be a run on redemptions, which means that lots of investors try to withdraw simultaneously. Funds don’t normally hold large cash balances as it hurts return targets. The fund may be forced into making quick asset sales to find enough cash to satisfy the redemptions before the time limit ends. This can destroy NAV. For example, you may have a real estate asset that is valued at $100 million, which is priced into the current NAV. The fund is forced to sell it to satisfy redemptions, and only realises $90 million. Therefore, $10 million is wiped off the NAV that belongs to investors. Debt still has to be paid down in full, which leaves unitholder holding the losses.
is unitholder the one managing the fund not the investor? Thanks. ek82 Wrote: ------------------------------------------------------- > Redemption = investors requesting the fund to > redeem (exchange) their units for cash. > > During a downturn there is can be a run on > redemptions, which means that lots of investors > try to withdraw simultaneously. Funds don’t > normally hold large cash balances as it hurts > return targets. The fund may be forced into > making quick asset sales to find enough cash to > satisfy the redemptions before the time limit > ends. > > This can destroy NAV. For example, you may have a > real estate asset that is valued at $100 million, > which is priced into the current NAV. The fund is > forced to sell it to satisfy redemptions, and only > realises $90 million. Therefore, $10 million is > wiped off the NAV that belongs to investors. Debt > still has to be paid down in full, which leaves > unitholder holding the losses.
unitholder = shareholder