Is Closing a Fund Bad?

Closing a fund can enable a manager to stick with the investment strategy that has brought him or her success in the past: excessive assets may force a change in strategy. Closing is still probably worthwhile for funds with a small number of managers and analysts, a strategy sensitive to asset size, such as high-turnover momentum investing, or a fund that focuses on a less liquid asset class, such as small caps or real estate investment trusts (REITs).

Moreover, a number of fund companies have developed what appear to be effective game plans for closing new funds even before they are rolled out. They make their own estimate of what asset size would be appropriate for the fund and sometimes even make a public pledge to close when assets hit a certain level.