A Flexible Capital Raise: Shelf Registration Statements For Closed-End Funds

March 01, 2014

Exchange-listed closed-end investment companies (closed-end funds) have historically faced challenges in raising additional capital after their initial public offering (IPO) due to the structure of such funds and certain limitations imposed by the Investment Company Act of 1940, as amended (the 1940 Act). There are a greater number of options for raising capital available to closed-end funds that trade at a premium to their net asset value (NAV), as discussed further below. However, maintaining a trading premium is far from straightforward, and is often beyond the fund manager’s control. The discrepancy between NAV and market price can fluctuate widely in volatile markets, and is also influenced by investor sentiment and interest in the asset class in which the closed-end fund invests. Many closed-end funds go from a trading premium to a trading discount in a short period of time. Given these challenges, closed-end fund managers must act strategically to take advantage of trading premiums when they occur.

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