Investment Fund Management Reports and the GAO’s Recommendations

Investment report on fund management provides clients with important information about their investments. They are consistent and easy to understand. These reports provide information on performance in various ways (MTD), QTD and YTD) and are often accompanied with risk analysis data like VaR or stress testing. Regulatory requirements are forcing managers to provide more specific information about their risk management practices than ever before.

Investors are more and more interested in knowing exactly how much they pay for their investment funds. This is evident by the demand for more detailed information about fund fees. Some funds define the term management fee in a narrow sense, and only include costs associated with selecting portfolio securities within this category. Other funds have “unified” fees which cover a broad range of costs, including administrative and record keeping services, brokerage commissions and 12b-1 fees.

Many funds make use of breakpoint agreements in which the management fee is reduced at certain asset intervals based upon the total assets of a fund. To assess these contracts, investors must know the management fee for every interval. The GAO suggests that the Commission to require that funds disclose fee information per share at the class level, as well as revealing any fees paid through the principal and not the management fee.

The GAO also recommended that Investment Company Act requires that independent directors (directors who aren’t affiliated with the fund’s management) must comprise at a minimum of a majority members of the board of a mutual fund. This will ensure that independent board members are able to adequately represent the fund shareholders and their interests.

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