In a bear market, mutual fund directors often ask themselves if a management fee based on performance is a good idea. This MPI Bulletin addresses this perennial issue. In earlier Bulletins, we have addressed the issue of what fund directors can do in response to poor investment performance. Certainly performance fees are a direct and understandable response. However the decision to implement one is not simple. This Bulletin argues both sides.

As someone with little financial experience, making the leap from saving to investing can be more than a little daunting, especially when banks pay consistent interest and guarantee deposits. However, interest rates paid by banks are typically much lower than rates available to investors, and could even result in financial loss if they are less than inflation. In order to make the switch from saving to investing, it is important to understand how the market works, the types of investments available, and the best way in which to meet your goals through investing.

With the continued growth in the number of mutual funds and, perhaps more importantly the anticipated retirement of many mutual fund directors, the issue of mutual fund board composition continually crops up. Whether the purpose is to select a new director or to evaluate an established director, the need for criteria is all-important. Naturally each board has to consider its own needs, gaps in existing skills and objectives. Nevertheless our firm's view of the current composition of mutual fund board and some comments about the skills or experiences which may be lacking are useful starting points for an evaluation of mutual fund governance.