Investment Fund Management Reports and the GAO’s Recommendations

Investment Fund Management Reports and the GAO’s Recommendations

Investment report on fund management provides clients with important information about their investments. They are reliable and easy to understand. They present information on performance in various ways (MTD) (QTD, MTD and YTD) and are typically coupled with risk analysis data like VaR or stress testing. The regulatory requirements are forcing managers to provide more information on their risk management processes than ever before.

Investors are keen in knowing what fees they pay for their fund investment as evidenced in the increasing need for greater detail on fund fee information. Some funds define management fees narrowly and include only the costs associated with selecting securities for the portfolio in this amount. Other funds have “unified fees” which cover a variety of expenses, including administrative and record-keeping services as well as brokerage commissions and a 12b-1 fee.

Many funds utilize breakpoint agreements where the management fee decreases over certain asset intervals based upon the total assets of a fund. Investors need to know the amount of the management fee is for each interval in order to assess these contracts. The GAO recommends the Commission require that funds provide fee information per share at the class level as and disclose the fees paid out of the principal and not the management fee.

The GAO has also recommended that the Investment Company Act require that independent directors (directors not associated with the fund’s management) constitute at least the majority of a fund board. This is to ensure that board members who are independent can adequately represent the fund shareholders’ interests.

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