Regulated Funds & Fund Managers

This goal of this section is to introduce a structured approach to analysis.

• Purpose of transaction and sources of payback - Who is the counterparty? What assets or derivatives are being financed? How will the transaction be settled or the repaid at maturity?
• Risk analysis - operating environment, financial fundamentals and management
• Structure - risks and mitigants of the transaction.

• Fund ratings - rating agencies, Morningstar and other ratings
• Information sources - prospectus, financial & portfolio statements.

This section differentiates funds by their legal, structural, jurisdictional features and their investment strategies.

• Types of fund - mutual funds (incl. UCITS and SICAVs), pension funds, managed accounts, closed-end funds and investment trusts, private equity, tracker and exchange traded funds (ETFs), fund of funds, umbrellas, master feeders, REITs
• Structure and legal status of funds and managed accounts
• Jurisdiction: offshore registrations, listings, manager domicile.

• Investment strategies - risk profile of strategy and policies
• Traditional strategies - fixed income (money market, bond, municipals) equity and specialist funds; growth, value and balanced strategies; capital guaranteed structures
• Alternative strategies: use of derivatives and leverage.

Fund strategy assessment.

The goal of this section is to review the macro, competitive and regulatory drivers of the fund management industry.

• Competitive drivers in sub-sectors of the industry - institutional, retail, wealth management
• Regulation and supervision
• Regulation and supervision by region (focus varies - US: 1940 Act; EU: UCITS; Asia: various)
• Mutual funds - investment and leverage limits, disclosure
• Pension fund regulation - funded status; investment limitations
• Fund manager regulation; capital adequacy, licensing, business practices
• Exercise: comparing regulatory regimes.

This section offers a structured approach to the financial analysis of funds.

• "S": Size - reviewing size, diversification and market position of fund
• "M": Market risk - volatility measures e.g. standard deviation, VaR
• "A": Asset quality - liquidity and valuation of assets, haircuts
• "L": Liquidity - redemption risk on open-end funds
• "L": Leverage - use of financial and derivative leverage; funded status for pension funds
• "P": Performance - bench marking performance - NAV measures, information and Sharpe ratios.