Activist hedge funds are increasingly targeting closed-end funds (CEFs) to enrich themselves while ignoring the interests of retirees and retail investors. These corporate raiders threaten to undermine the entire CEF asset class, which is vital in many retail investors’ portfolios and the broader capital markets.
In recent years, activists have exploited a loophole in section 12 of the Investment Company Act to amass significant stakes in closed-end funds. This maneuver has led to a decline in CEFs, dropping from 495 in 2018 to 402 in 2023.
Danielle Zanzalari is an assistant professor of economics at Seton Hall University. She wrote this for InsideSources.com.