- February 2011: Vol. 23 No. 2

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Same Plot, Different Setting: Investors Rediscover Open-End Funds

by Andrea Waitrovich and Larry Gray

The story of open-end funds sounds a lot like your basic romantic comedy: Boy meets girl, boy gets girl, boy loses girl, boy gets girl back.

Since the first open-end fund made its debut in the 1970s, investors have had a love-hate relationship with the investment structure that promises relative immediate access to the asset class, diversification and prospects of liquidity. These privately securitized, infinite-life pools gained popularity and prominence in the 1970s and 1980s as the main squeeze for pension plans then making their initial forays into the real estate asset class. However, the bloom was off the rose and the love affair fizzled when the real estate market crashed in the 1990s and investors discovered the promise of liquidity worked better in theory than in practice.

The problem was and always will be that open-end funds cannot provide perfect liquidity. They are not public securities. The reality is that the same market conditions that typically prompt

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