In an industry that has seen its share of fads, Vanguard has long stood as a symbol of low costs and plain-vanilla products. Founded by John Bogle in 1975, the Vanguard Group is now the second largest mutual fund complex in the United States and has inspired a loyal following among many of its shareholders.
Low-cost funds have been Vanguard’s hallmark— and one of its main rallying cries within the industry. Its ability to provide funds with low expense ratios depends on the company’s unusual business model. In the Vanguard Group, the management company is actually owned by shareholders of its member funds. Read the rest of this entry »
Over the past few years, the merger activity in the mutual fund industry has sharply accelerated. Some of the mergers involved fund companies trying to fill out their line of products. An illustration is the acquisition of Templeton’s management company, which has a strong reputation for international stock funds, by Franklin’s management company, with its heavy emphasis on bond funds. Other mergers involved institutionally oriented securities firms seeking more distribution to retail investors. An illustration is the acquisition of Dean Witter, a retail wire house, by Morgan Stanley, with its institutional client base. Still others involve banks that want to gain a foothold in the mutual fund industry. An illustration is the acquisition of Dreyfus, an investment manager for a broad line of mutual funds, by Mellon National Bank. The following case study discusses several mergers in the mutual fund industry and the early results of the consolidations. Read the rest of this entry »
Establishment
Establishing a mutual fund follows a similar procedure in all countries. First, a management company determines the investment opportunity for a fund with a particular investment objective and policy, then decides its appropriate type or construction, either the corporate type, as an investment company, or the contractual type, as a unit or investment trust. It is worth noting that, in law, only the corporate type has a’legal personality’.
Usually in conjunction with an independent custodian, depositary or trustee, the fund’s constitutional documents are prepared and executed as legally binding instruments. The officers and agents, such as the investment manager, transfer agent, selling agent, administrator, auditor, are identified and then the terms and conditions upon which the fund will be offered and operated are settled and the charges and tees of the various parties agreed. Application for authorisation is then made to the relevant authority. Read the rest of this entry »
Shares in mutual funds can be sold directly by the fund or by its management company to investors, or through agents employed by the fund or management company as sales agents or representatives in a sales force. Managers may also sell funds through independent intermediaries acting either as agents for their clients or simply as selling agents who employ consultants to provide advice and support but selling directly to the public.
In the US, mutual funds typically sell their shares through a separate organisation known as a principal underwriter or distributor, and only in a few instances will the fund sell its own shares. The independent intermediaries are usually firms set up as broker-dealers. Read the rest of this entry »
