Some critical aspects of managed funds

[Fred114]

Bruce Sheppard from 2010 suggested that he wouldn't invest in managed funds due to the inherent moral hazard that the fund manager faces. At best the fund is managed within those hazards that the market throws up. He suggests that it is merely an uncomfortable compromise that clients face when investing with the funds.

He does offer this list of aspects to look for when investing in managed funds, somewhat facetiously, because he doesn't believe such information is available for an assessment, and the immorality extends to the investor.

* are closed rather than open.

* are structured so that you get to appoint as owners of the FUND, the directors.

* the management contract does not have an excessive parachute.
* the management contract can be cancelled by the board on notice and does not require a meeting of unit holders.

* the management contract is for a fixed base fee, not a percentage of assets.
* The manager's performances incentive is based on income and or real asset growth not bought asset growth.
* the board has a sound track record and no baggage.
* incentives are used to purchase units in the fund.
* the manger has invested a significant amount of his own money in the fund.

Taken from http://www.stuff.co.nz/business/blogs/stirring-the-pot/4016945/Investing-in-managed-funds

[CJ]

Closed funds are held in open contempt by some commentators like Josh Brown (the Reformed Broker). They almost always trade at a discount to NAV, whereas open funds almost always trade at NAV.That only applies to listed funds.

The likes of PIE funds are closed unlisted funds so one assumes you would get you money out (or buy in at the first place) at NAV.

Assume PIE funds would fail the management contract test but at this stage at least, the management contract is the reason you would be buying in given the performance he has achieved.