Investment Fund Management Reports and the GAO’s Recommendations

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Investment report on fund management provides clients with important information about their investments. They are consistent and easy to understand. These reports usually present performance information in a variety of ways (MTD, QTD, and YTD) and are usually supported by risk analysis data like VaR and stress testing. Regulatory demands are forcing managers to present their risk processes in more detail than before.

Investors are more and more interested in knowing what they pay for fund investments. This is reflected by the demand for more detailed information on fees charged by fund. Some funds define the term management fee as narrowly as they only include costs associated with the selection of portfolio securities in this amount. Other funds have “unified” fees that cover a range of expenses, including record keeping and administrative services, brokerage commissions and 12b-1 fees.

Many funds have breakpoint agreements in which the management fee decreases over certain intervals in the asset portfolio based on the total assets of the fund. Investors must know the amount of the management fee is for every interval to assess these contracts. The GAO suggests that the Commission require funds provide fee information per share at the level of the class as also revealing the fees paid out of the principal but not the management fee.

The GAO also recommended that Investment Company Act requires that independent directors (directors who are not connected with the management of a fund) comprise at least a majority of members of a board of a mutual fund. This is intended to ensure that directors who are independent are able to effectively represent the interests of shareholders of funds.