Why has Citadel chosen to specialize in closed end, exchange traded funds?
We’ve chosen this focus because closed end funds (CEFs) offer our unitholders a variety of structural benefits relative to open end mutual funds. Because mutual funds have to constantly redeem units and deal with continuous unit offerings, managers of open end mutual funds must worry about a constantly changing pool of capital. In contrast, Citadel managers typically invest a defined amount raised in an IPO and can therefore put capital to work in a long-term strategy. As well, CEF managers tend to incur lower costs because they have lower asset turnover as a result of not having to accommodate capital inflows and outflows. And because CEFs are exchange listed, they are fully liquid and can be sold on any business day. Depending on the fund’s charter, a closed end fund can also use leverage to enhance returns.
