Investment Fund Management Reports and the GAO’s Recommendations

Investment fund management reports clients to get vital information regarding their investments in a consistent and accessible manner. These reports present performance data in a variety of ways (MTD) (QTD, MTD and YTD) and are usually supported by risk analysis data such as VaR or stress testing. The regulatory requirements are forcing managers to provide more specific information regarding their risk management procedures than ever before.

Investors have a strong interest in knowing how much they are paying for their fund investment and this is evident in the ever-growing demand for more and specific information on fund fees. Some funds define management fees narrowly and only include costs associated with selecting the appropriate securities for the portfolio in this amount. Other funds have “unified fees” that cover a range of costs, including administration and record-keeping services such as brokerage commissions, and 12b-1 fees.

Many funds utilize breakpoint contracts which allow the management fee to is reduced at specific asset intervals based on the total assets information and personal data protection of the fund. Investors must be aware of what the management fee is for each interval in order to evaluate these contracts. The GAO suggests that the Commission that funds provide fee information per share at the class level as well as revealing any fees that were paid from the principal, but not the management fee.

The GAO also recommended that the Investment Company Act requires that independent directors (directors who are not associated with a fund’s management) comprise at least a majority of members of a board of a mutual fund. This will ensure that board members who are independent are able to adequately represent the shareholders’ interests.