What is the difference between
an open ended fund and a closed

ended fund? Either in private
equity or a syndication or a

real estate fund? What is it
that makes that difference?

We're going to go through that
in this video

let's talk about the difference
between an open ended fund and a

closed ended fund. Now first, a
caveat. I don't mean the

difference between a fund and a
syndication. In reality, a

syndication is a group of feed
people coming together for a

common purpose, where a fund is
a group of money, you know, a

grouping of money, a pile of
money for a common purpose. So

to me, they're kind of the same
thing. So whether it's for one

asset, or whether it's for a
group of assets, a pool of

assets, either a blind pool or a
directed pool. That's not what

we're talking about. We're
talking about closed ended funds

or open ended funds. So what
exactly are we talking about?

And what's the distinction? So I
think it's helpful to draw it

out. And I'll provide some
examples along the way. So here

is a two different timelines at
the top is closed ended fund,

and at the bottom is an open
ended Fund, in a closed ended

fund. We've got an investor and
who comes in here, and maybe

he's got another investor who
comes in here. And then he's,

there's maybe another investor,
who comes in here. And then

together, they all traveled down
the same path until a liquidity

event here.

And maybe there's different
payouts, and there's different

things along the way. So an
example, a typical real estate

syndication, we buy the building
here at time zero, we maybe we

are raising funds for a month or
three months, then we all

traveled down this path, until
it's time to sell the property,

sell the property, divide the
proceeds, maybe along the way,

we're paying little
distributions here in there. But

everybody's staying in together,
it's all going as one piece down

that line. So that is a closed
ended fund. So what exactly is

an open ended fund, an open
ended fund is completely

different. A best example of an
open ended Fund is a mutual

fund. So a mutual fund, you have
people coming in at all sorts of

different times and exiting at
all sorts of different times. So

let's say you've got someone
here, who buys in here, travels

down for a few months, and exits
here. And then maybe there is

another person who comes in
here, travels down and exits

here. Totally different. And
then maybe there is a third

person who comes in here and
travels down and then exits

here. So you've got these
different entry and exit points.

The difference, obviously, is
that hold period. So what the

challenge of an open ended fund
oftentimes is, is determining

what we call net asset value.
Net Asset Value is the price

think of it as the price per
share. So for mutual fund, maybe

this time it starts at $100 a
unit that's fair, maybe it's

risen to 110. And then maybe
it's gone to 120. Maybe it falls

back down to 115 and then 105
But then it skyrockets back up

to 130. At any given point, you
can see what the profits are. So

for this blue line, you can see
he bought in at 100 and he's

exiting at 105 So he has a gain
of five with the green has

bought in at 110 and exit at
130. They have a gain of 20 the

red guy though he lost five he
bought in at 120 and it went

down to 115. So he lost five. So
but we know With any given point

what everybody has, and
everybody is treated the same.

But what if this was not a
mutual fund? What if this was a

property or a portfolio of
properties. So there is an

important property bought here,
a property bought here, a

property bought here and here.
And this one sold here. This one

was held all the way to here.
This one was exchanged into this

one, which was sold here, how
are you going to find out figure

out what sort of values the blue
guy gets, the green guy gets or

the red guy gets, it's very
challenging. So I'll do another

video on net asset value and how
that's done and how we handle

that. But you can see for a real
estate fund, that's the true

challenge. That's why they are
much, much more complicated, and

much, much more difficult to do.
It costs more in legal fees to

put it together. Because it's
more complicated. It costs much

more and accounting fees because
it's more complicated. All of

those things make it just that
much trickier. So I hope this

makes it clear what the
difference between a closed

ended fund is and an open ended
fund. So let's go over what the

key takeaways from this are. For
First, open ended funds in

private equity, allow investors
to enter and exit positions

freely. So sometimes there will
be a lockup period. But

basically, it lets people come
in at any specific point as

designated in the terms and then
it provides more liquidity

because we let them out at
regular intervals. A closed

ended fund involves the
acquiring managing and the

ultimately the aim is selling,
right, it's that big capital

event. Now, certainly there can
be profits along the way and

there can be cash flow in that
closed ended fund. But the main

purpose of the closed ended fund
is that appreciation were an

open ended fund, the main
purpose really is that cash

flow. And in an open ended fund
in equity, we have more frequent

payouts generally, because of
the purpose is that is that cash

flow. And so it also offers a
lot more flexibility in managing

the investment itself, in terms
of designing whether how cash

flow is gets dispersed. And
lastly, the closed ended funds

have the potential for much
higher returns, because we don't

have this calculation of Net
Asset Value all the time, which

exists. So open ended funds on
the other hand, they provide a

lot more stability because they
can people can come and go as

they want. And it gives that
liquidity. My name is Tilden

Moschetti. I am a syndication
attorney for the Moschetti

syndication Law Group. I help
syndicators and private fund

managers establish Reg D
offerings for themselves by

providing them the compliance
documents that they need in

order to be compliant with the
rules of Regulation D rule 506 B

and 506. C. We basically help
you put these funds together,

whether it's an open ended fund
or a closed ended fund. I would

love to see if we can help you
give us a call or visit our

website and set up an
appointment and we can discuss

your project and figure out a
way to get you from where you're

at today to your goal as a
syndicator or a fund manager