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Written by Sara Yerkey and Meyrick Payne
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For many years the principle methodology for selecting peers to assess investment performance and fees and expenses has been based on either investment objective or investment style. This MPI Bulletin argues that a supplemental selection process should include investment strategy. The principle logic behind this concept is that to a greater and greater extent the differentiator between alternate funds is based on how investment selection decisions are made rather than the result of those decisions.
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Written by C. Meyrick Payne and Sara Yerkey
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As markets rebounded in 2009 from the tumultuous decline in 2008, the 1st and 2nd quarter end assets under management of management companies generally also improved, and revenue went right along for the upswing. Advisory and operating margins also improved but not to quite the same extent.
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Written by By C. Meyrick Payne and Sara Yerkey of Management Practice Inc.(MPI)
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The most important function performed by mutual fund trustees is the annual review of investment management arrangements. One of the most complex and potentially confusing factors in this review is the analysis of the investment manager’s profitability. In the past year the Jones vs. Harris case has perplexed many a mutual fund lawyer in that it may change the way in which the contract renewal process has been conducted for the past 25 years. However, there has been no final resolution and, until the case is decided by the US Supreme Court, the assessment of the advisor’s profitability remains a necessary step in the contract renewal process.
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Written by C. Meyrick Payne of MPI & Simon Collier of Sondent Group
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One of the difficult tasks that a fund director faces involves assessing the reasonableness of the fees charged by either an affiliated or independent service provider. The most frequent services are (1) transfer agency, which typically represents about 20% of fund expenses and is the largest fund expense other than investment advisory fees and distribution fees, (2) fund accounting, which may represent about 5% of fund expenses, and (3) administration, which might represent about the same. A considerable part of the difficulty is that some tasks might be included under any of the three services, thereby making comparisons tricky. Another difficulty is that the contracts, although reported on a fund-by-fund basis, are typically negotiated on a complex-wide basis.
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Written by C. Meyrick Payne and Jay Keeshan
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Since the inception of the Investment Act of 1940, one of the critical duties of mutual fund directors has been the annual approval or renewal of the investment advisory contract. As part of the process, directors must review crucial data for each fund they govern, which includes comparisons with peers on numerous issues including investment performance, fees, and profitability. In addition to the profitability of the advisory contract, directors must review and evaluate any potential “fall-out benefits” to the advisor that may result from other fees charged to the fund (i.e. transfer agency or administrative fees). A more recent SEC ruling in June of 2004 now requires that directors disclose information on how and why they came to various decisions they make during contract renewal.
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Written by C. Meyrick Payne and Sara Yerkey
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The most important function served by mutual fund directors is the annual review of investment management arrangements. One of the most complex and potentially confusing factors in this review is the analysis of the investment manager's profitability. Not only is the computation of this factor difficult, but determining what weight to give the results of the analysis in renegotiation of the advisory contract can be even more puzzling. For example, if the manager’s profit margins are high or consistently increasing, should directors take this as indicating a reason to reconsider certain terms of the contract? Or should adviser profitability be viewed in some other way?
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Written by C. Meyrick Payne, Senior Partner, Management Practice Inc. (MPI)
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Mutual fund directors often wrestle with what should be appropriate response to poor investment performance in one of the funds that they govern. Some incorrectly describe the range of tools available to directors as "a feather or a sledgehammer". These critics believe that the directors can only mildly chastise the Management Company or alternatively lift the advisory contract. Nothing could be further from the truth, particularly as the troublesome fund is usually part of a larger complex where there are a variety of organizational alternatives. Invariably the top executives of the Management Company are just as anxious to correct poor performance as the independent directors. The purpose of this article is enumerate some effective alternatives which generally fall into three categories; organizational, fee-related and structural. Each of these is discussed below.
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Written by C. Meyrick Payne
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Under the provisions of section 15 (c) of the Investment Company Act of 1940, a majority of the independent trustees must annually approve the terms of the investment advisory contract. To accomplish this, the trustees must consider a great many variables, including the adviser's experience, expertise, financial capability, quality of service, as well as the overall profitability to the adviser of the services provided.
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