Exchange-traded funds (ETFs) and closed-end funds (CEFs) are wrappers that share basic similarities. While ETFs are much newer, they have become the preferred vehicle for many investors due to their tax efficiency, transparency, and simplicity. CEFs, however, remain popular for a niche group of advisors and investors who enjoy the unique features of CEFs. These are known for providing a stable income stream, which makes them attractive to retirees. But other characteristics of their fund structure — like their flexibility to offer exposure to private securities and alternative strategies — also make them attractive to sophisticated retail investors and advisors who may be looking for these strategies in ETFs.
Certain Innovative Strategies in ETFs Already Exist in CEFs
As stated above, ETFs and CEFs are both wrappers and can serve separate purposes. Many asset managers actually offer similar products in both ETF, CEF, and mutual fund structures, and investors can choose their preference based on their needs. But ETFs have become synonymous with innovation — both active strategies and even indexed strategies (see my previous note on the topic) continue to push boundaries. There were over 700 ETF launches in 2024 and 339 in 2025 (as of May 16). Many of these were in newer, active strategies. CEF launches, on the other hand, have diminished. According to the Investment Company Institute (ICI), the number of traditional closed-end funds has fallen for 13 consecutive years and has been down 40% from year end 2011 to year end 2024 (see the full report here).
Increased competition has been driving some ETF innovation, particularly in large, low-cost passive funds. Issuers — especially smaller issuers — are attempting to create new active and alternative strategies to differentiate themselves from the larger, low-cost funds. Some of these alternative strategies, however, are easier to access through the closed-end fund structure. While there aren’t net new launches in traditional closed-end funds, assets have still increased slightly over the past couple of years due to performance. And other CEF structures — interval funds, tender offer funds, and business development companies — have nearly tripled in assets from 2020 to 2024 (according to ICI data). I believe that CEFs aren’t a dead fund structure and can also serve as a vehicle for innovation.
Closed-End Funds Can More Easily Hold Illiquid Investments
Some distinctions in their structure allow closed-end funds to hold illiquid investments. The “closed” in closed-end funds means that after the initial IPO, direct sale of capital is closed and shares trade on an exchange. This also means that closed-end funds do not create and redeem shares. This process is highly valued in ETFs for its efficiency, but also creates liquidity needs. Because the daily redemptions aren’t required, closed-end funds can more easily hold illiquid assets, like private securities, relative to ETFs.
The term “relative” matters here, because it is generally difficult for retail investors to access these private securities. Under Rule 22e-4 of the 1940 Act, the SEC places limits of 15% for illiquid securities in open-ended mutual funds and exchange-traded funds. Although this upper limit exists, ETFs rarely hold illiquid securities to this limit. This is because they are difficult to trade in practice. But due to recent popularity of private investments, several ETFs with direct/indirect access to private markets have grown in popularity.
The ERShares Private-Public Crossover ETF (XOVR) became a well known ticker for its current ~10% exposure to SpaceX. Another name that dominated headlines earlier this year was the SPDR SSGA IG Public & Private Credit ETF (PRIV). PRIV uses its partnership with Apollo to hit liquidity requirements. This is a newer, more novel way to access private markets relative to closed-end funds. But as with ETFs, there are still some regulatory hurdles for closed-end funds when it comes to certain areas of private investments.
Registered closed-end funds have restrictions when it comes to holding private investment funds like hedge funds and private equity funds. Previously, if they held over 15% in private funds, they were required to limit their sale to accredited retail investors with minimum starting investment of $25,000. These rules were never published, but were provided as comments during the registration process. Organizations like the Securities Industry and Financial Markets Association (SIFMA) opposed these restrictions against retail investors. An excerpt is below, and the full April 9 letter is available here.
The future, however, seems to hold more relaxed rules for illiquid funds in closed-end funds. On May 19, SEC Chairman Paul Atkins made a statement saying that the SEC would reconsider those restrictions in closed-end funds. Read the full statement here.
This was confirmed the next day in additional statements by the SEC in a panel livestream (view here).
Illiquid/Private Securities in Closed-End Funds
Closed-end funds can provide access to private investments, but in reality, what does this look like? Like ETFs, not all closed-end funds invest in illiquid or private securities just because they can. Private securities are often attractive in areas like private infrastructure or sectors with increased IPO/M&A activity. Investing in private securities allows access to smaller, lesser known investments. Those could have greater growth potential relative to larger stocks. The following are a few examples of what an investor can find in a closed-end fund regarding private securities and other illiquid investments.
1 – ASA Gold and Precious Metals Fund
One of the oldest traditional closed-end funds is the ASA Gold and Precious Metals Fund (ASA), managed by Merk Investments. In the ETF space, there are not many active competitors. Large peers include the VanEck Gold Miners ETF (GDX) and the VanEck Junior Gold Miners ETF (GDXJ) — both indexed products in public equities. In comparison, ASA currently holds almost 14% in private assets. Its fourth largest holding is a 5% weight in a private placement in San Cristobal Mining. And even among its public equity holdings, there are significant differences against an indexed ETF. ASA’s top holding is 14% in G Mining Adventures (GMIN CN). This stock appears in GDX with 0.8% weight and GDXJ with 1.5% weight. ASA only shares a handful of names with both GDX and GDXJ (with currently around 10 names each in common).
Because of its structure, ASA is able to provide a different view to the mining space — focused on active management and research with access to private investments — relative to the current space of indexed/market-cap weighted ETFs.
2 - BlackRock 2.0 Closed-End Funds
Another area where private securities are relevant is in new innovative growth areas. Starting around 2019, Blackrock launched several funds — mostly equity funds — that touched areas like science, growth, and innovation. BlackRock refers to these funds as the “BlackRock 2.0 Closed-End Funds” (more info here). Each has varying exposure to private investments across a broad range of industries. Several examples include: PsiQuantum (which built one of the first useful quantum computers for real world allocations), Snyk (security software for developers), and Relativity (vertical integration of robotics, software, and 3D printing in rockets and satellites).
The largest allocation to private investments is in the BlackRock Science and Technology Term Trust (BSTZ). It held 22 private investments at the end of 2024 — 31% of its total assets. Similarly, the BlackRock Technology and Private Equity Term Trust (BTX) held 29 private investments at the end of 3Q24. Those total almost 25% of its total assets.
These funds are a high income alternative to ETFs in the thematic or disruptive tech space. In disruptive technology, the highest (and riskiest) growth often is found in early-stage companies — not just pre-revenue public companies that are often excluded from indexed products due to low trading volumes, but also private companies in pre-IPO stages.
Bottom Line:
While ETFs are the preferred fund structure for many investors, closed-end funds aren’t a dead fund structure. ETF investors interested in accessing private investments or alternative strategies may want to see what they can find in the closed-end fund universe.
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