3.33.6.6 Maintain Details for Series Fund Merger

This topic provides information on maintaining details for series fund merger details.

During series fund merger, the fund series that are maintained separately in the system are consolidated at period end. For series fund merger, you must maintain related details in the Corporate Actions Maintenance screen. Select the Series Fund Merger option in the Corporate Action Type field.

The example given below illustrates the corporate action Series Fund Merger.

Example

Assume that Investor A purchases 1,000 units at the launch of the fund GFUND1, at US$1,000 per unit (HWM of GFUND1). This will be the Lead Series of Unit. It is also assumed that the incentive fees are being paid quarterly and HWM of fund is Greater of Subscription Price and Previous high water mark.

Also, assume that at the end of the first month the Gross NAV (GNAV) (the NAV before deduction of incentive fee) for GFUND1 has risen to US$1,100 and therefore the NAV will be US$1,080, net of US$20 / 20% incentive fee (Assuming performance fee is 20%).

• NAV for GFUND1 is published at US$1,080

After the first pricing period, you need to create one more fund, say GFUND2, with NAV same as Lead Series. Assume that at this time Investor B subscribes US$1 million for 1,000 Unit (Series II) at, again US$1,000 (HWM of GFUND2) each.

At the end of second month, assuming that value of fund has risen by further 10%:

• GNAV of GFUND1 is now US$1,210 = NAV US$1,168; and
• GNAV of GFUND2 is now US$1,100 = NAV US$1,080

After second pricing period, you need to create one more fund with NAV same as Lead Series. Let’s say user create GFUND3 for creation of Series III as below,

Investor C subscribes US$1 million for 1,000 Series III Unit at, again US$1,000 (HWM of GFUND3) each.

At the end of the third month, the GNAV has yet again risen by a further 10%, so that:

• The GNAV per Share of the GFUND1 (Lead Series) is US$1,331, which translates to an NAV of US$1, 264.80;
• The GNAV of GFUND2 (Series II) is US$1,210, equaling an NAV of US$1,168; and
• The GNAV for GFUND1 (Series III) is US$1,100, equaling an NAV of US$1,080.

Thus, at the end of the first quarter, as a High Water-Mark (HWM) has been reached and each of the Series of Unit have paid incentive fees, the Series II and Series III Unit can now be consolidated into the Lead Series.

This can be archived by using Corporate Action screen, by choosing the Series Fund Merger option to merge GFUND2 (Series II) and GFUND3 (Series III) into GFNUD1 (Lead Series) as below,

• Units created for Investor B (Lead Series) = (NAV of GFUND2 / NAV of GFUND1) * Units allotted to Investor B.

Therefore, Investor B's units are worth US$1,168.00, which equates to 923.466 units at the NAV per Lead Series, at US$1,264.80 each.

• Units created for Investor C (Lead Series) = (NAV of GFUND3 / NAV of GFUND1) * Units allotted to Investor C.

Investor C will effectively liquidate his 1,000 Unit of US$1,080,000 and invest the proceeds of that liquidation into the Lead Series at US$1,264.80 per share, to receive 853.890 Lead Series Unit.