A closed asset (or liability for that matter) typically results from either an exit event or an investor's decision to conclude their investment, marking a significant point in the investment's lifecycle. In the context of managed funds or real estate syndications, an exit event usually entails distributing the remaining value of the investment back to the investors. This can be achieved through various means, such as selling the underlying asset, issuing dividend payouts, or liquidating the company's assets.
The process of closing an asset encompasses several steps, including determining the financial implications of the exit event. It's essential for investors to be informed about specific details such as the distribution date, total return, and any relevant notes concerning the distribution. These details are crucial for understanding the performance and final outcomes of the investment.
Upon the completion of an exit event, the asset is marked as "closed" in the investor's portfolio, signifying that:
The asset is no longer expected to generate future cash flows.
The value or this asset (or lack of it) will not directly affect the investor's current net worth anymore.
Nevertheless, the significance of closed assets goes beyond their operational lifespan. They continue to influence the historical performance of a portfolio, providing critical insights into the success of previous investment choices and their outcomes.
To learn how to close out an asset, watch our quick tutorial here.