Mutual funds are pooled investment vehicles that offers instant diversification for their investors. There are three types of mutual funds.
The fund needs to know the current value of all investment holdings (including cash positions), any liabilities like management fees payable, and the total number of shares outstanding.
Hedge funds charges incentive fees that are engineered to give hedge fund managers significant pay-outs based on their performance. The typical hedge fund fee structure is known as “2 plus 20%,” which means that they charge a flat 2% of all assets that they manage plus an additional 20% of all profits above a specified benchmark. Hedge funds do soften the incentive fee structure with a few safeguards for investors.
Hurdle rate: It is the benchmark that must be beaten before incentive fees can be charged.
High-water mark clause: It essentially states that previous losses must first be recouped and hurdle rates surpassed before incentive fees once again apply.
Clawback clause: It enables investors to retain a portion of previously paid incentive fees in an escrow account that is used to offset.
Late trading—when orders are accepted after the 4:00 pm cut off trading time. Significant events can occur after 4:00 and trades might be reversed. Hence late trading is illegal and subject to prosecution.
Market Timing—some funds assets are not actively traded, thereby resulting in stale pricing when calculating NAV. If markets are fluctuating before 4:00 pm cut off, it may be profitable to trade at NAV at 4.00pm since the stale pricing means that the value of the shares is likely higher or lower than NAV. Market trades may result in sudden fluctuations in the fund’s size that will require fund to maintain greater liquidity. Although, if trading exceptions are made by regulators, the act of market timing is not illegal.
Front running involves trading ahead of a likely price movement due to a known upcoming trade to be made by the fund, say by traders own account or favoured clients or employees. It is illegal and subject to prosecution.
Directed brokerage involves a quid pro quo whereby a mutual fund will direct trades to a broker in exchange for the broker investing its clients in the mutual fund. Not illegal, it is a strongly discouraged practice.
Market neutral funds are where long and short positions make the fund ambivalent to market direction, and factor neutral funds are where positions are isolated from a specific factor like oil or interest rate policy.
There are two different types of mergers:
Powered by BetterDocs
Create a new account
Number of items in cart: 0
Enter the destination URL
Or link to existing content