Accounting for Special Situations
Managers use various techniques to handle distressed funds, which affect fund of funds as investors in these funds. Your accounting and portfolio management systems need to understand, support and report on these special situations.
Some of the techniques used to manage the turmoil:
- Dropped gates – Based on reaching some percent of redemption, managers may drop a redemption gate, allowing only a predefined percent of redemptions. They may define it as a Stacked gate, where gated investors are given priority on the next redemption date.
- Suspended redemptions – Funds may suspend redemption, or suspended payment of already redeemed positions.
- Side-pocketed investments – Funds may create a separate sub-fund to hold less liquid investments, and move some investor capital, pro rata, into this sidepocket.
- Liquidating trusts – Funds may set up a separate legal entity to hold illiquid or unpricable positions. Managers are likely to distribute redemption-in-kind, in the form of shares of this new trust.
- Restructuring – In an ad-hoc way, funds are redefining their liquidity terms and fee structures, though often grandfathering in existing investments.
Just as managers may need to invoke special situations, fund of funds too may choose to use the same techniques, which in turn affect their investors.
Cogency tracks all these special situations and reports them back to you in relevant reports:
- We track special situation dates and attributes in Fund and Manager records.
- We define Dated fee structures and Dated liquidity terms for funds and share classes to show past, current and future terms. Unless you define otherwise, existing investments use the terms in effect on the effective date of the investment.
- We use Transfer and Assignment transactions to move portfolio and investor investments between funds and side pockets, so that each individually shows in portfolio and capital reporting with full details on allocation, income, attribution, etc.
- Our Portfolio reports include information about manager special situations, giving you an understanding of the stability of your portfolio.
- Fund Look Thru lets you see the effective portfolio of your funds, from feeder funds through master funds through SPV's, including sidepockets, as deep and wide as your fund structures go.
- Our Portfolio and Investor Liquidity reporting is critical in these times. What used to be considered ‘disaster scenario planning’ is now a daily reality. Our reports show you what is available for redemption: by notice date, by redemption date, by cash-arrival date, with and without fees, taking into account any of the special situations invoked by the managers you are invested in or by your own funds.
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