Reality check 2, page-49

I can understand your frustration.

But, closed funds always experience deviation from the underlying NAV.

Given shareholders can't redeem units - the NAV is largely irrelevant. The share price is the overriding driving force.

Judging by your frustrations - you would be far better placed investing in open funds - where the share price does not deviate from the NAV.

There is a growing trend away from closed funds in recent times - thus the huge discounts you see across the board.

I agree a 10% target is unacceptable, and you are right, the manager should always seek out parity.

There will always be two schools of thought when it comes to closed funds. I am currently invested in a number of LICs trading at far greater discounts and it is frustrating.

The biggest losers are always those who invest at the float for these vehicles. If any advisor ever recommends participating in the float - you know you have a conflicted advisor.

I hope the Australian market follows other markets around the world and implements better liquidity measures for closed funds - like off market buyback events. I doubt this will happen though.

It amazes me how many closed funds operate with less than 200 million in capital. You are never going to have a strong enough secondary market to keep the NAV in line.

My thinking is you keep closed funds to assets that rely upon a closed capital pool, like private equity and real estate. When it comes to vanilla equity funds - the open vehicles seem to be more appropriate.

There are advantages and disadvantages to both open and closed. Noting this, I always have a laugh when fund managers come out swinging hard in favour of the closed fund model. I would too if I was living off the fees and not having to deal with mass redemptions.