Pooled Fund Fee Q&A

In 2020, performance teams and compliance departments need to decide which GIPS Reports the firm will present to prospective investors in a comingled fund. Calculation methodology aside, for managers of commingled funds, the choice is between the use of GIPS Composite or Pooled Fund Reports.

The Pooled Fund Fee Q&As referenced in our 2Q update are compiled in their entirety here.

Four of the six Q&A are not relevant for managers of mutual funds or other broadly distributed funds, and these interpretations do not apply to managers who are subadvisors on comingled funds.

  • When presenting a GIPS Composite Report to a Prospective Investor in a Limited Distribution Pooled Fund:
    • The firm may provide the required fund fee schedule and expense ratio for the fund as an addendum to the GIPS Composite Report and could use the fund’s offering documents as the addendum.
    • If multiple funds and/or multiple share classes are included in the GIPS Composite Report, disclosing a range of fees and expense ratios in the GIPS Composite Report is not sufficient.
    • For multiple share classes, firms may disclose:
      • Multiple fee schedules or expense ratios
      • The highest fee schedule or expense ratio, or
      • The fee schedule or expense ratio appropriate to the specific investor.
    • Fee schedules must be current.  Expense ratios may be current or effective as of the end date of the GIPS Composite Report.
  • IF the firm chooses to provide a GIPS Composite Report to a prospective investor in a Broad Distribution Pooled Fund (BDPF), the firm must also include the current fee schedule and expense ratio for the BDPF. 
    • At Cascade, we do not recommend firms provide GIPS Composite Reports to prospective investors in BDPFs if gross and net returns are grossed-up by administrative expenses to be more representative of a separately managed account. These returns are higher than the net of all fee returns required by regulators in the U.S.
    • Neither Composite nor Pooled Fund Reports are required to be presented for BDPFs, but Pooled Fund Reports are more appropriate for retail investors because the net returns in a GIPS Pooled Fund Report are reduced by the full expense ratio.
  • This year, the CFA Institute began including new Q&As at the end of each monthly GIPS standards newsletter.  If you’re not receiving them, sign up for monthly newsletters and access past newsletters here.

Questions on the pros and cons of which report to use?  See our September 2019 article Bridging the Fund vs. Composite Divide or contact us: 503.887.5842 or email team.cascade@cascadecompliance.com.

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