Earlier this year in April, Powershares filed for a new closed-end fund (CEF): PowerShares ACCE Global Listed Private Equity Fund. The fund will invest in companies that invest or lend capital to privately held companies. It will closely follow, but not necessarily track, a model portfolio created by Red Rocks Capital Partners. On a first glance, it looks like any other new CEF filing…but look closer.
"After 180 days of trading, should the fund trade at a median 3% discount for 30 consecutive trading days, it will convert to an ETF automatically, with no shareholder approval necessary. The ETF would then track an index based on the Red Rocks Capital model portfolio," explains Heather Bell for Index Universe. So the CEF becomes an ETF. However, this isn’t the first CEF to turn ETF: First Trust did this, but the key difference here is that it did so with shareholders’ approval. PowerShares CEF/ETF is the first one to do this without shareholders’ approval.
CEFs trade at either a discount or a premium. It seems as if Powershares’ strategy here attempts to prevent a discount. Also, it seems that PowerShares could benefit from the switch because CEF IPOs have extra sales charges attached to them on top of the usual brokerage commission fees. This means extra money for PowerShares to attract new investors and assets to the fund, which would create more fee revenue. It will be interesting to see how investors respond to this new hybrid fund.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.