Investment Fund Management Reports and the GAO’s Recommendations

Investment fund management reports help clients get the most important information regarding their investments in a consistent and accessible way. They usually provide performance data in a variety ways (MTD, QTD, and YTD) and are usually associated with risk analysis information like VaR and stress testing. The regulatory requirements are forcing managers to document their risk processes in even more detail than ever before.

Investors are more and more interested in knowing exactly how much they pay for their fund investments. This is reflected by the need for more specific data on fund fees. Some funds define management fees narrowly and include only the costs that are related to choosing the right securities for their portfolio in this amount. Other funds have “unified fees” that cover a wide range of costs including administration and record-keeping services as well as brokerage commissions and a 12b-1 fee.

Many funds have breakpoint agreements which allow the management fee to decreases at certain asset intervals dependent on the total assets of the fund. To examine these contracts, investors must be aware of the management fee at every interval. The GAO recommends that the Commission require the funds to disclose fee information on a per-share basis at the class level and to also disclose the fees that are from the principal but not from the management fee.

The GAO also recommended that the Investment Company Act requires that independent directors (directors who are not connected with a fund’s management) are at least a majority of members of the board of a mutual fund. This is intended to ensure that independent directors are able to adequately go to the website represent the interests of shareholders of funds.

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