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

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

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

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We're going to go through that
in this video

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

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

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

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syndication is a group of feed
people coming together for a

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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event here.

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

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

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

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

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

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

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we're paying little
distributions here in there. But

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

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

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an open ended fund, an open
ended fund is completely

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

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

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

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

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

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another person who comes in
here, travels down and exits

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

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person who comes in here and
travels down and then exits

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

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

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challenge of an open ended fund
oftentimes is, is determining

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

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

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

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

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

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

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

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

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

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

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

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what everybody has, and
everybody is treated the same.

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

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property or a portfolio of
properties. So there is an

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important property bought here,
a property bought here, a

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

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

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

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

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

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

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

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

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

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

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

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

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makes it clear what the
difference between a closed

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

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

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private equity, allow investors
to enter and exit positions

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

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

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designated in the terms and then
it provides more liquidity

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because we let them out at
regular intervals. A closed

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ended fund involves the
acquiring managing and the

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

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

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

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purpose of the closed ended fund
is that appreciation were an

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open ended fund, the main
purpose really is that cash

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

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

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

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the investment itself, in terms
of designing whether how cash

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

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

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

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

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

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

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Moschetti. I am a syndication
attorney for the Moschetti

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syndication Law Group. I help
syndicators and private fund

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managers establish Reg D
offerings for themselves by

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providing them the compliance
documents that they need in

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

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

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

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

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website and set up an
appointment and we can discuss

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

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