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Time Effect for Fee Calculation

Questions on using, creating, or understanding data in Fund Manager reports.

Postby coolspot » Fri Sep 22, 2017 10:17 pm

Hi.

I have some problem understanding the way calculation is done for performance fee. If we set the fee to be billed quarterly, how will the system calculate the fee? Will that means that for the management fee report, if we set the period anything other than the quarterly (let's say monthly), it will spew out wrong number?

I have some example:
Fee: 0.75%/15%
Initialization: 01Jul17
Period 1-31Jul17 1-31Aug-17 1-19Sept17 1Jul-19Sept17
Ending Managed Value: 30,012 30,397 30,168 30,168
FMS Mgmt Fee Output : 73.94 45.33 66.11 71.51
Manual Fixed Fee Calc: 18.92 18.74 11.76 56.57
Perf Mgmt Fee Calc : 57.79 (45.05) 10.68 14.94
Total Manual Calc: 76.71 (26.31) 22.45 79.99

FMS.png
FMS.png (7.98 KiB) Viewed 3030 times


The closest number I get between FMS output and my manual calculation is for the period 1jul-19sept17. I am suspecting that even if we specify the period in management report as monthly, it will still take the fee for the last 3 months?

Trying to understand.

Thanks,
Chris
coolspot
 
Posts: 13
Joined: Fri May 12, 2017 11:14 pm

Postby Mark » Mon Sep 25, 2017 8:22 am

Hi Chris,

When using a management fee method of type "% of Ending Value plus Performance" there are some additional restrictions/assumptions. You can read these in the documentation. The 2 key ones here are:

  • The calculated performance fees assume the same methodology has been used since the specified starting date, you have not missed a billing period, and you have not billed for any partial billing periods. If you need to change the performance fee calculation options, create a new management fee method and specify the starting date and High Water Mark as of the date of the change.
  • When running a Management Fee or Invoice report only the end date is meaningful (the beginning date is ignored). The beginning date is automatically determined based on the billing period and ending report date.

So, if you set up a management fee method using this method with a quarterly billing period, it assumes you have billed quarterly, since your starting point. Any Management Fee report you run ignores the "starting" report date, and only uses the "end" date. If your end date isn't aligned on a billing period end date, the management fee method is calculated to show how much the fees would be as of that end date. So, for the fixed portion, it is the ending market value on the report end date, times the fixed rate, and then scaled for the percentage of the billing period.

Example:
End Market Value is $10,000, and you run a report ending 31 Aug, and your quarterly billing period would normally end 30 Sep. The "Fixed" portion of the fees would be $10,000 * <fixed_rate> * <years>. The "<years>" would be approximately 0.1667, which is 2/3 of a quarter of a year.

You can turn on additional columns in the Management Fee report to help you see the breakdown better. You can turn on the display of the total fee, the fixed portion, and the performance portion. See "Options / Report Preferences... / Management Fees".

Another helpful tool is to look at the report calculation log. From within the Management Fee report, look at "Help / Report Calculation Log...".
Thanks,
Mark
Fund Manager - Portfolio Management Software
Mark
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Location: Chandler, AZ

Postby coolspot » Thu Sep 28, 2017 3:01 am

Thanks for the clarification.

Just to confirm:
If the fund is started on 1st August, then the quarterly period will still be counted Jan-Mar, Apr-June, Jul-sept, oct-Dec, instead of Aug-Oct, Nov-Jan, Feb-Apr, May-Jul?

Thanks,
Chris
coolspot
 
Posts: 13
Joined: Fri May 12, 2017 11:14 pm

Postby Mark » Thu Sep 28, 2017 8:03 am

Hi Chris,

Yes, that is correct.

The billing period when using a management fee method of type "% of Ending Value plus Performance" is always either quarterly or yearly, based on the selection of "Billing Period". Here is the definition for Billing Period:

Billing Period:
Select the frequency that management fees are charged. Quarterly and Annual billing periods are supported. Calendar based periods are used. For example, annual billing periods always start on January 1. Quarterly billing periods start on the first day of January, April, July, and October.

So, you can choose when to start billing under "Start Billing Method At:", but the billing periods are either quarterly or annually, and based on calendar periods. For quarterly it is always Jan-Mar, Apr-Jun, Jul-Sep, Oct-Dec, no matter when you started billing. If you start billing on Aug 1 then the fixed portion of the management fee for that quarter Jul-Sep will be pro-rated based on the percentage of the billing period you were billing. It would be roughly 2/3 in this case, since you were billing for 2 of the 3 months of the initial billing period. Performance fees are just based off the performance, so those would not be pro-rated for this first partial quarter.
Thanks,
Mark
Fund Manager - Portfolio Management Software
Mark
Site Admin
 
Posts: 11252
Joined: Thu Oct 25, 2007 2:24 pm
Location: Chandler, AZ

Postby coolspot » Wed Oct 25, 2017 10:21 am

Hi Mark,

A bit update on my situation.

Initial Value (7/1/2017): 30,012,252
End Value (9/30/2017): 30,216,913
Fee: 0.75% / 15%

That gives me the performance / increase of: 204,661

Fixed fee is based on ending value (period of a quarter) : 0.75% * 0.25 * 30,216,913 = 56,656
Performance fee: 15% * 204,661 = 30,699
Total Fee: 87,355.

However, The Management Fees Report shows that the fee is 78,857.

Any help on the part I am missing?

Thanks,
Chris
coolspot
 
Posts: 13
Joined: Fri May 12, 2017 11:14 pm

Postby Mark » Thu Oct 26, 2017 10:12 am

Hi Chris,

Are all those figures coming from the Management Fee report, or are those your calculations? You can use "Options / Report Preferences... / Management Fees" to turn on additional columns, like:

Fee (Total)
Non-Performance Fee
Performance Fee

to help you see what Fund Manager is calculating. If some number isn't matching your calculations, look at "Help / Logs / Report Calculation...". If you still have some questions, you can email me your report, and calculation log, along with which field isn't making sense, and I can try to help more specifically.
Thanks,
Mark
Fund Manager - Portfolio Management Software
Mark
Site Admin
 
Posts: 11252
Joined: Thu Oct 25, 2007 2:24 pm
Location: Chandler, AZ

Postby coolspot » Fri Oct 27, 2017 3:46 am

Hi Mark,

Thanks for the pointer. I have found the solution after looking at the log.

Apparently, the HWM is calculated after substracting the fixed fee! That solves the whole equation!

Many thanks!
Chris
coolspot
 
Posts: 13
Joined: Fri May 12, 2017 11:14 pm


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