EP2057599A2 - Système et procédé permettant de dériver des taux d'intérêt sur des valeurs dans un regroupement de fonds de placement - Google Patents

Système et procédé permettant de dériver des taux d'intérêt sur des valeurs dans un regroupement de fonds de placement

Info

Publication number
EP2057599A2
EP2057599A2 EP06848259A EP06848259A EP2057599A2 EP 2057599 A2 EP2057599 A2 EP 2057599A2 EP 06848259 A EP06848259 A EP 06848259A EP 06848259 A EP06848259 A EP 06848259A EP 2057599 A2 EP2057599 A2 EP 2057599A2
Authority
EP
European Patent Office
Prior art keywords
fund
assets
tax
funds
rate
Prior art date
Legal status (The legal status is an assumption and is not a legal conclusion. Google has not performed a legal analysis and makes no representation as to the accuracy of the status listed.)
Withdrawn
Application number
EP06848259A
Other languages
German (de)
English (en)
Other versions
EP2057599A4 (fr
Inventor
Phillip D. Caldwell
Edmund J. Oliver
Andrew D. Smith
Richard E. Bartholomew
Current Assignee (The listed assignees may be inaccurate. Google has not performed a legal analysis and makes no representation or warranty as to the accuracy of the list.)
Northern Trust Co
Original Assignee
Northern Trust Co
Priority date (The priority date is an assumption and is not a legal conclusion. Google has not performed a legal analysis and makes no representation as to the accuracy of the date listed.)
Filing date
Publication date
Priority claimed from PCT/US2006/032949 external-priority patent/WO2007027487A2/fr
Application filed by Northern Trust Co filed Critical Northern Trust Co
Priority claimed from PCT/US2006/049449 external-priority patent/WO2008024132A2/fr
Publication of EP2057599A2 publication Critical patent/EP2057599A2/fr
Publication of EP2057599A4 publication Critical patent/EP2057599A4/fr
Withdrawn legal-status Critical Current

Links

Classifications

    • G—PHYSICS
    • G06—COMPUTING; CALCULATING OR COUNTING
    • G06Q—INFORMATION AND COMMUNICATION TECHNOLOGY [ICT] SPECIALLY ADAPTED FOR ADMINISTRATIVE, COMMERCIAL, FINANCIAL, MANAGERIAL OR SUPERVISORY PURPOSES; SYSTEMS OR METHODS SPECIALLY ADAPTED FOR ADMINISTRATIVE, COMMERCIAL, FINANCIAL, MANAGERIAL OR SUPERVISORY PURPOSES, NOT OTHERWISE PROVIDED FOR
    • G06Q40/00—Finance; Insurance; Tax strategies; Processing of corporate or income taxes
    • G06Q40/06—Asset management; Financial planning or analysis

Definitions

  • Investment vehicles such as collective investment funds (domiciled in various countries), pension funds (including those subject to ERISA) 5 trust funds, insurance company funds or other collective investment vehicles have certain operating costs.
  • every fund including institutional funds, pays an investment advisory fee to an investment adviser who invests the fund's assets, custodian fees to a custodian for the safekeeping of the fund's assets, portfolio accounting fees for the determination of the fund's asset value and income, shareholder servicing fees to various entities which provide investors with information and services regarding the fund, an audit fee to the fund's independent accountants who review the fund's financial statements, and a legal fee for counsel to represent the fund and each of its independent trustees.
  • a retail fund (one whose investors are largely individuals) incurs the same kinds of expenses as an institutional fund, although certain expenses, such as shareholder servicing fees and distribution (12b- 1) fees, will be larger for a retail fund, since individual investors need more services than do sophisticated institutional investors. [0003] Having a large amount of assets results in various economies of scale in fund operating costs. Since many of a fund's expenses are independent of the fund's asset base, a larger fund asset base produces a lower operating expense ratio (expenses to assets), which increases the net investment performance of the fund. Also, since larger funds purchase securities in larger denominations, they are able to bargain for higher yields (on bonds and other debt securities) or pay lower brokerage commissions (on equity securities) than a smaller fund can.
  • the partnership portfolio is registered under the 1940 Act (since it is an investment company), but its shares are not registered under the 1933 Act. Individuals cannot invest directly in the partnership portfolio. Its only investors are the funds themselves, each of which is able to invest 100% of its assets in the partnership portfolio.
  • the partnership portfolio may legally be regarded as a trust or other entity, it is generally considered to be a partnership for U.S. tax purposes. As a partnership, it generally receives "flow-through” tax treatment and, so, for U.S. purposes, the partnership portfolio does not pay taxes, but rather all economic gain or loss flows through to the funds as partnership portfolio investors. U.S. mutual funds must rely on qualifying for "regulated investment company” ("RIC") status under the Internal Revenue Code (the "Code”) to be exempt from taxation.
  • RIC regulated investment company
  • the RIC provisions of the Code generally prevent mutual funds from investing in other types of investment funds and impede the division of a single mutual fund into multiple mutual funds. These RIC provisions also lead to economic distortions and inequities among shareholders which will be discussed below.
  • the partnership portfolio is not a mutual fund, it is not subject to certain economic distortions and inequities that are inherent to normal mutual fund investing.
  • a first fund which invests in a second fund just before the second fund distributes its capital gains.
  • the first fund realizes capital gains from this distribution, as does every shareholder of the second fund.
  • the first fund has not actually realized any gain in the value of the second fund, and so the second fund is merely returning a portion of the first fund's original investment.
  • the first fund may be required to pay tax on this part of its original investment or, if the fund is a mutual fund, pass such tax on to its shareholders. Thus, a partial return of investment becomes subject to tax.
  • the partnership portfolio makes daily allocations of income, capital gains, and expenses or investment losses, rather than actual distributions. These daily allocations, which are determined and managed by a data processing system, are based on an "allocation ratio.” Such daily allocations avoid economic distortions and inequities by directly allocating the appropriate economic benefit and loss to each shareholder on that day.
  • Mutual funds merely distribute income, and gain or loss, to whatever shareholders happen to exist on an arbitrary date when a distribution is made. While such gain or loss is taken into account in between such distributions through the determination of the net asset value of the mutual fund's shares, it is the distribution of the gain or loss which creates a taxable gain or loss for a shareholder.
  • the Hub and Spoke financial services configuration thus avoids this disadvantage by more accurately matching economic and taxable income.
  • the partnership portfolio and partner fond configuration presents great administrative challenges, however. Because each of the partners in the partnership portfolio is some type of fund, the assets of which change daily as customers make further investments or withdrawals, the partnership interest of each fond varies daily. For example, consider a partnership portfolio made up of Funds A and B. Assume that at the start of the day, Fund A has $750,000 invested in the partnership portfolio and Fund B has $250,000 invested. The partnership portfolio has $1,000,000 in assets with Fund A having a 75% share and Fund B having a 25% share.
  • each such daily allocation is comprised of various economic components—income, gain, loss, expenses. These various components must be isolated and aggregated, on a continual basis, for both non-tax accounting purposes and, again (in separate accounts), for tax purposes.
  • Economic inaccuracies would appear over time if daily allocations were not made. Such inaccuracies will arise since typically a mutual fund will not actually allocate or pay out on a daily basis the economic components of the fund's economic experience for that day. Depending on a particular fund's prospectus, actual cash distributions can be made monthly, quarterly, or as otherwise so determined.
  • each fund has a book capital account, which represents each fund's total investment in the partnership portfolio including all earned, but undistributed, economic benefit.
  • This book capital account for each fund includes the previous day's fund shareholder purchases and redemptions, the fund's proportional share of daily portfolio income and expenses, and the fund's share of daily portfolio realized and unrealized gain or loss.
  • What is lacking, however, is a fund portfolio that retains 100% of all of the investment assets within the fund itself, without establishing a partner fund configuration, and can take advantage of certain cross-border tax treaties to provide the above advantages of the Hub and Spoke system without the resultant tax consequences.
  • Such a system would allow multinational companies or investment management companies, for example, to pool pension fund or other fund assets around the world, consolidate these funds in a tax-transparent environment, and under a single or multiple number of investment managers, and invest those pooled assets in multiple jurisdictions around the globe.
  • Another known technique takes a different path and provides for a global data processing system for distributing assets between different portfolios belonging to one or more funds or other entities which may or may not be legal persons and which are able to hold, own or collect assets and which may themselves be the object of an individual management and/or administration measure.
  • cloning The above-described technique is based on a principle known as "cloning.” This term applies to the cloning of internal portfolios belonging to one or more entities as defined above which, in the most successful configuration, makes it possible to create identical twin portfolios or entities. In such a configuration, the cloned internal portfolios for each participating entity are not mutually linked by any kind of contract, but they do enter into mutual contracts with the same parties. In particular, they can have the same depositary and the same administrative agent.
  • a manager or administrative agent may take the form of a person, an organization or an entity, which is tasked with managing and/or administering a specific portfolio comprised of assets of the various participating entities.
  • cloning typically does not require any legal link between the cloned entities (independent and total control over assets) or the creation of any kind of common external portfolio as a separate legal unity or investment vehicle. This makes full and permanent separation of the assets possible. This permanent separation of the assets of participating entities results in a relatively high degree of financial independence and full legal independence between the participating entities.
  • Such a configuration of clonable entities typically requires an information processing system that is designed to determine and control distribution of the assets of the various cloned portfolios of the participating entities on a commingled basis.
  • This processing system provides an information system based on data representing the assets of the various cloned portfolios.
  • This information processing system should also give a global asset manager access to a large information system, including a consolidated management report, which enables the manager to take decisions on a commingled basis. It readjusts the internal cloned portfolios after any specific transaction involving one or more cloned internal portfolios in such a way that they are equivalent on a relative basis.
  • the internal portfolios are readjusted via a processing procedure.
  • Such a system processes cash flow from operations (subscriptions, redemptions, conversions) occurring at the level of each cloned entity.
  • any one of such operations causes one or more cloned entities to have a larger or smaller proportion of assets held in cash than the others.
  • Such a processing system readjusts the internal portfolios by generating purchases for cloned entities having a relative surplus of cash assets and sales for cloned entities having a relative deficit of cash assets. These technical transactions of purchases and sales are generated automatically by the information system, and the processing is carried out in stages.
  • the Luxembourg FCP for example, is formed under contract, which means that all of the participants within the fund have an undivided ownership of each and every asset of the fund. Therefore, when a loan is contracted, all of the investors in the fund share in that loan based of their percentage ownership of the fund. What is not allowed to happen is that, based on an investor's tax profile, you choose to only lend their share of the fund; legally this cannot happen because they do not own any specific share, but have a co-ownership in each asset.
  • the legal entity such as a Pension fund or a corporation is the lender, but within a pooled structure such as an FCP, although it is transparent, it is the FCP that the broker would be borrowing from.
  • FCP pooled structure
  • the broker borrows a position they will borrow from each separate subfund which has ring fence liability. Therefore, when they borrow they are said to borrow from a fund like the "NTMLC AS Man Co for Univest FCP - US Equity Fund.”
  • RWT Relevant Withholding Tax
  • This tax increases the manufactured dividend requirement when a UK scheme is involved in the transaction. As an example, if the UK scheme is approximately 40% of the value of the fund, this will mean that the blended rate is higher than if the UK investors where not in a pool. (The Assignee is working in order to submit an application to the Inland Revenue to get the regulations changed in respect of UK pension schemes, which would remove this the RWT requirement.)
  • a data processing system for deriving a suggested lending rate for an asset owned by a portfolio established as a pool of funds.
  • the system includes a managed fund having legal ownership of all assets within the fund, and at least one account (a subset of the managed fund) reflecting the asset ownership proportions in the managed fund, the at least one account not having legal ownership of any independent financial assets, but owning a percentage share in all the assets of the managed fund, and wherein funds are distributed and rebalanced to ensure that the at least one account maintains a proportionate share of the assets within the managed fund.
  • means are provided for deriving a suggested lending rate for an asset within the fund.
  • a method for deriving a suggested lending rate for an asset owned by a portfolio established as a pool of funds.
  • a managed fund is provided that has legal ownership of all assets within the fund.
  • At least one account (a subset of the managed fund) reflecting the asset ownership proportions in the managed fund is also provided, the at least one account not having legal ownership of any independent financial assets, but owning a percentage share in all the assets of the managed fund, and wherein funds are distributed and rebalanced to ensure that the at least one account maintains a proportionate share of the assets within the managed fund.
  • a suggested lending rate is then derived for an asset within the fund.
  • the present invention thus enables a multinational corporation to cause its employee benefit plans from multiple international jurisdictions to pool their investments into a single entity, which would invest in various financial products including but not limited to exchange traded debt and equity securities as well as various non-exchange traded transactions, including investments in swaps, over- the-counter options, futures, limited partnerships, unregistered notes or master note programs, unit trusts and certain commingled funds.
  • investment managers may establish tax-transparent vehicles to attract investors (including pension funds, charities, insurance companies, corporations and fund vehicles) from different parts of the world.
  • the invention is preferably structured as a pooled vehicle that may have one or more sub-funds that vary by investment objective and/or eligible investments.
  • each pooled vehicle may be organized as an Irish CCF, a Luxembourg FCP, or a Dutch FGR.
  • pooling funds can be established and supported in other jurisdictions where the legal and regulatory environment is conducive to the establishment of such a pooling fund.
  • the investors in such pooled vehicles and sub-funds may be employee benefit plans of the multinational corporation, charities, insurance companies, or other investor types.
  • a banking or trust organization that is duly qualified and licensed to act under the laws of the applicable jurisdiction as a management company for the pooled vehicles will act on behalf of the applicable pooled vehicle.
  • Assets owned by the pooled vehicles can then be lent to borrowers without the impediment that the asset is commonly owned by multiple investors as tenants in common and who are subject to differing regional tax requirements.
  • a loan rate can quickly be determined and published to potential borrowers of the asset, and is not subject to fluctuation or constant readjustment when ownership percentages of the asset change due to the ownership makeup of the pooled vehicle holding the asset.
  • FIG. IA shows a prior art cloned pooling structure
  • FIG. IB shows the asset pooling structure of the invention
  • FIG. 2 is presently preferred multi-level diagram showing the investment pooling account structure of the invention.
  • Figure 3 is a chart illustrating the processes executed by the investment pooling system on a daily basis
  • Figure 4 is a timeline showing the presently preferred semi-monthly valuation and dealing cycles of the invention.
  • Figure 5 is a chart showing one example of the trade splitting process of the invention.
  • Figure 6 is a chart showing one example of the rebalancing process of the invention.
  • Figure 7 is a chart illustrating the pooling reconciliation process of the invention.
  • Figure 8 is an expanded chart of the reconciliation process shown in
  • FIG. 7
  • Figure 9 is a chart illustrating the income reconciliation process of the invention.
  • Figure 10 is a block diagram of the technology system infrastructure of the invention.
  • Figure 11 is a flow chart showing the flow of the fund accounting process of the invention.
  • Figure 12 is a flow chart showing the presently preferred derivation of a blended dividend rate of the invention.
  • Figure 13 is a detailed flow chart of the override MDR process shown in FlG. 12.
  • FIG. 1 a pooling block diagram is shown in FIG. 1.
  • the structures shown in FIG. 1 are for asset pooling.
  • FIG. IA a prior art cloned/pooling structure 10 is shown.
  • a virtual consolidation 12 exists at the upper level of a two-level hierarchy, and one or more legal entities 14 are participants in the "virtual" consolidation 12.
  • ownership of securities remains in the legal entities 14.
  • the "virtual" consolidation 12 reflects the commingling of the assets of the three separate legal entities 14.
  • the "virtual" consolidation 12 is therefore a clone of these entities 14. Securities are not owned at the upper level.
  • the cloning system readjusts the ownership of securities by the legal entities 14 by taking into account changes in ownership as a result of subscriptions or redemptions, etc., into or from the legal entities 14.
  • the cloning system thus ensures that the ownership ratios of the legal entities 14 remain accurate before and after these account changes.
  • the asset pooling structure shown in FIG. IB illustrates a different pooling structure 20, where legal ownership of all securities exists in one legal entity 22 at the middle level. But beneficial ownership of the assets vests in the investors, as tenants in common.
  • the investors 26 own a percentage ownership interest in all of the commingled assets.
  • offshore investment vehicles comprise the legal entity 22 in order to retain tax transparency.
  • a sophisticated methodology is provided to reflect (a) legal ownership and beneficial ownership interests, and (b) to report the distribution and rebalancing of ownership interests to ensure that each investor maintains an accurate proportion of ownership interest in each security held in the legal entity 22 at all times.
  • the first is multinational pooling
  • the second is investment manager pooling.
  • Multinational pooling is a single investment vehicle for multinational companies to pool investments such as pension assets from multiple country plans (e.g., where Swiss, Dutch and UK subsidiaries of a multinational company have their own country-based pension plans).
  • Multinational pooling offers the following advantages to the multinational company: lower costs, enhanced governance and oversight from the corporate center, improved long term returns for the multinational sponsoring the defined benefit arrangements, and lower contributions.
  • multinational pooling allows a pension sponsor, for example, to pool assets together across various countries, i.e., across various national tax treaties.
  • a pension plan may be subject to a different tax treaty - between UK and France, for example - depending on the country in which it is domiciled. (As background, a pension plan may be able to take advantage of tax concessions not available to a foundation, endowment or an individual. Further, an endowment may be a United States endowment, a United Kingdom charity, or an equivalent plan.)
  • Investment manager pooling is the creation of a single pooling vehicle for various clients of the investment manager ("IM") who may share similar or differing tax treatments (e.g. UK Pension Fund, UK Investment Fund, Dutch Pension Fund).
  • the IM manages a single portfolio for multiple clients, yet permits the investors to take advantage of double taxation treaties that apply to them and are not commonly available to investors in other types of pooled vehicles.
  • the discussion below is primarily directed to multinational pooling, those skilled in the art will appreciate that the same features and advantages also can be applied to investment manager pooling as well without departing from the essential spirit and scope of the invention.
  • a company can enjoy enhanced governance and risk management of pension assets. Whether it is a UK pension plan, an Irish pension plan or a Dutch pension plan, the company can focus more attention and expertise on oversight and monitoring of the consolidated assets. Moreover, the pension plans can achieve enhanced, more consistent performance. The multinational company thus gets economies of scale by pooling its assets together. Because the pooling vehicle is tax-transparent, the investors pay withholding tax as if they had invested directly in the market, so they're not any worse or better off from a tax perspective.
  • FIG. IB For investment manager pooling, on the other hand, if the investment manager manages 15 separately managed U.S. equity accounts, the structure shown in FIG. IB would allow the manager to manage one fund and simultaneously serve all of the different investors at one time, while at the same time recording the proportionate ownership interest of each investor in the assets of the fund. Investors will not experience tax drag from participation in this type of vehicle.
  • pooling vehicles can be utilized in the pooling structure shown in FIG. IB — one in Ireland, one in Luxembourg, and the third in the Netherlands.
  • the Irish vehicle is called the Common Contractual Fund (“CCF")
  • the Luxembourg fund is called the Fonds Commun de Placement (“FCP”)
  • the Dutch vehicle is called the Fonds voor Gemene Rekening (“FGR”).
  • CCF Common Contractual Fund
  • FCP Fonds Commun de Placement
  • FGR Fonds voor Gemene Rekening
  • pooling vehicles like the CCF, FCP, and FGR are used in the investment structure shown in FIG. IB to provide the tax advantages of the present invention.
  • the essential feature of the system is the ability to create a full record of an investor's proportional interest (both holdings and transactions) in a pooling vehicle.
  • this structure 30 is represented as a multi-level diagram and investors 32 could invest in any of the funds 34.
  • various financial products including, but not limited to, exchange traded debt and equity securities can be employed, as well as various non-exchange traded transactions, including investments in swaps, over-the- counter options, futures, limited partnerships, unregistered notes or master note programs, unit trusts and certain commingled funds.
  • a fund management system acts as a transfer agent ("TA") to keep track of and manage the investor's records.
  • TA transfer agent
  • the identity of the investors 32 will be maintained on the transfer agency's computer systems.
  • the pooling fund is established in either the Netherlands, Luxembourg or Ireland. Alternatively, pooling funds can be established and supported in other jurisdictions where the legal and regulatory environment is conducive to the establishment of such a pooling fund.
  • the transfer agent records the units that represent ownership interest in the underlying securities.
  • the second level shown in FIG. 2 identifies the sub-funds within the legal entity 34 that constitute the legal owners of the securities mentioned in connection with FIG. IB above.
  • each sponsor of a pooling fund can decide what investment mandates they're interested in and create sub-funds accordingly.
  • a U.S. equity and a European equity sub-fund 34 are shown in FIG. 2. These are by way of example only.
  • Sponsors of a pooling fund may choose to have only one asset class and, therefore, there would be no need to create separate sub-funds 34.
  • Those two sub-funds 34 represent the specific investment mandate set up by a sponsor of the legal entity.
  • the investors 32 at level 1 make a decision whether or not to invest their money or other assets (by way of an in specie investment into the sub-funds 34) in one of the two sub-funds 34. In other words, they have the asset allocation decision to decide whether to invest in the U.S. or European equity funds.
  • these investors 32 are institutions such as pension funds or investment funds.
  • the third level down in the structure shown in FIG. 2 is the investment manager level.
  • a company can decide how many managers 36 to employ to manage the investments that were consolidated into the various sub-funds 34.
  • the investment manager 36 is appointed as agent to manage the assets of the relevant sub-fund 34 and therefore functions like a mutual fund portfolio manager would function.
  • the investment manager does not own the assets of the sub-fund 34.
  • the sponsor of a pooling fund may choose to appoint one or more investment managers 36 for a given sub-fund 34.
  • a sponsor may also decide the allocation of assets in a sub-fund 34 given to the appointed investment managers 36 for that sub-fund 34. So as shown in FIG.
  • each investment manager in FIG. 2, at level 4, is the custody system.
  • the custody system (labeled “UEFMl,” “UEFM2,” etc.) represents the assets of each sub-fund 34 that are allocated to each manager 36.
  • the three smaller boxes 38 labeled “PPl 5 " "PP2" and "PP4,” are the income portfolios that are separated from the capital or master account 40 invested in these accounts.
  • Each income account 38 is tied to a single investor 32 who is potentially subject to a separate tax treaty depending on their domicile and/or tax status.
  • the income portfolio will reflect the gross income that would have been credited to the account in respect to the Dutch plan's holdings for that period and is subject to the appropriate tax treaty. So for each investor 32 in each fund, the system breaks out the income for that investor to keep it separate for tax purposes as the tax treatment may be different based on investor domicile and tax status.
  • the fund accounting takes place at levels 5 and 6.
  • the custody level (level 4) keeps all the records and reconciliations of all the depositories of subcustodians throughout the global markets. At that level, the system records the settlement, receipt and delivery of cash and securities purchases and sales.
  • the omnibus accounting level (level 5) reflects the net asset value of the sub-fund, and therefore reflects both settled and pending transactions ("Holdings")-
  • the investor accounting level (level 6) reflects the proportionate net asset value per investor, and their proportionate settled and pending transactions ("Holdings"). No physical cash or assets actually move at levels 5 and 6. So the actual accounts exist only at the custody level (level 4).
  • the fund accounting system (levels 5 and 6) consolidates the income and capital accounts reflected on the custody system (level 4).
  • Level 5 reflects each investment manager's aggregate Holdings. So, referring to FIG. 2, omnibus accounts 42 labeled "UEFMl,” etc. (level 5) represent all four boxes 38, 40 (shown in level 4) on a consolidated basis.
  • Level 6 reflects all assets, income and transactions apportioned among individual investors, as well as transactions between investors.
  • the system applies the tax rate appropriate to each individual investor account 46 at level 6 providing accurate income accounting.
  • the purpose of level 4 is to apply the correct tax rate in respect to the income of each investor, providing accurate income collection and tax withholding.
  • level 6 The purpose of level 6 is to create a complete accounting record for each investor and to accurately reflect capital gains and ownership participation.
  • a net asset value (“NAV") per unit can be calculated or "struck” at level 6 for the aggregate of each investor's (share class') accounts 48 per sub-fund.
  • NAV net asset value
  • level 6 is necessary because certain tax authorities need a report of realized gain/losses that were not effected based on market trades. For example, when subscriptions or redemptions come in through level 1 , the ownership percentages in a particular security within a sub-fund may change.
  • the system needs to reflect these changes in ownership percentages. So within each one of these boxes 46, as the new percentages are applied, the system rebalances each one of those three boxes 46. Thus, the three boxes 46 in level 6 equal in total the four boxes 38, 40 in total at level 4. The proportionate assets are broken out by investor at level 6 along with their unique income.
  • Subscriptions and redemptions are allocated to the investment managers 36 (e.g., UEFMl) and are reflected in the custody portfolio 40. Although for most investors subscription and redemptions are not taxable events per se, they do impact percentage ownership and result in a need to rebalance assets (described in detail below).
  • the fund management system tracks all subscriptions, redemptions, and investor specific cash movements in order to maintain accurate ownership interests within the sub-funds 34. As income is received by each investor based on their relevant tax treaty, the percentage ownership is updated. This may happen as frequently as daily.
  • the investor accounts 46 will include realized gain/losses that are not the result of market trades, but are due instead to rebalancing of percentages to ensure that ownership interests reflect the same proportions as the sub-funds 34.
  • Level 6 is necessary because certain tax authorities require that these adjustments need to be reported.
  • Level 6 reflects a notional ownership of assets based on each investor's percentage ownership interest in the assets of a sub-fund as a tenant in common.
  • Figure 3 illustrates the daily process, e.g., what's done on a daily basis within the fund management system for cross-border pooling of funds.
  • the system captures all activity between level 4 and level 5, it reconciles all the positions between levels 4 and level 5, then splits the incoming trades into the various level 6 accounts based on ownership percentage. And then rebalancing is again performed if needed.
  • income received and fees paid may change ownership percentages as frequently as daily resulting in rebalancing transactions.
  • FIG. 4 a timeline of the preferred semi-monthly valuation and dealing is depicted. Three timelines represent the activity that takes place in the custodian, accounting, and transfer agent systems and processing groups.
  • NAV net asset value
  • income can be distributed prior to each NAV, allowing all investors within the same fund to receive the same capital NAV.
  • both the NAV and income distribution is reported back to the Transfer Agent at level 1.
  • the system therefore can perform either share class or capital NAVs within the context of the invention.
  • the system can distribute income as needed. Once all the shareholder activity is captured, which includes decisions to reinvest realized income, the income will become automatically reinvested as a subscription, so it comes back in as capital. Thus, only after all the subscription and redemption activity comes in can the new percentages be determined, and that's when, at level 6, the rebalancing to the new percentages is performed.
  • Figure 5 shows the operation of one presently preferred trade-splitting module.
  • Trade splitting is the mechanism that works in tandem with the rebalancing module to ensure the assets remain proportionate to the percentage ownership before and after account changes take place.
  • the 16 th of September to the 30 th of September is a dealing period, and the UK, Swiss, and Belgian accounts represent three different investors located in three different countries.
  • the Belgian investor had a subscription that occurred on the first of October (box 50).
  • the new ownership percentages for the next two-week period are adjusted from 60-35-5 to 50-30-20 for the UK, Swiss, and Belgian investors, respectively.
  • the custody system only had one trade for 500 shares of stock in this period.
  • the trade is effected by the investment manager 36 of a particular sub-fund 34.
  • the system then captures the trade into custody on the 3rd of October (i.e., the next day).
  • the system is going to use the 28 th of September for splitting purposes because that was the trade date of the trade.
  • the system will use the original 60-35-5 percentages to split the trade because the trade is treated as occurring before October 1. This is necessary because, should the security go ex-dividend, let's say on the 29 th of September, the investors should receive their dividend based on their percentage ownership as of the ex-date. So the system splits back to the trade date. If the trade actually occurred on the 2 nd of October, as shown on the right side of FIG. 5, the same as the date that the system captured it, it would split to the new allocation percentages (e.g., 50-30-20).
  • the new allocation percentages e.g., 50-30-20.
  • the trade splitter is proprietary software which has been integrated into software purchased from SunGard Data Systems Inc., www.sungard.com, and sold under the trade name Global Invest One ("GIO").
  • the trade splitter module operates between level 5 and level 6. It uses percentage ownership information in conjunction with the level 5 transactions to calculate the split transactions that are posted to level 6, shown in FIG 2. Trades are split to the smallest nominal upon which income can be collected from the paying agent on behalf of the beneficial owner.
  • FIG. 6 a chart showing the rebalancing process, which is performed in conjunction with the trade splitting module shown in FIG. 5, is provided.
  • the same country, same investors, and same percentages shown in FIG. 5 are used for ease of reference.
  • notional share ownership is reflected at 300, 175, and 25 shares, between the UK, Swiss, and Belgian accounts, as shown in FIG. 5.
  • the system needs to reflect a new notional ownership of 250, 150, and 100 shares, respectively, for each of the three investors because Belgium funded a subscription (see above).
  • Figure 7 shows a flow chart for pooling reconciliation activities according to the preferred cross-border pooling system and method of the invention.
  • the majority of reports used in the pooling environment are standard and the same as reports generated for fund accounting purposes generally known in the art.
  • Enhanced custody to valuation system reconciliations have been provided, however, to accommodate the needs of the pooling system and process.
  • control reports have been generated for the transaction splitter module illustrated in FIG. 5 and rebalanced transactions shown in FTG. 6.
  • FIG. 7 shows how to reconcile between levels 4, 5, and 6.
  • Level 4 (upper half of FIG. 7) is reconciled daily to level 5 (lower right) for holdings, cash, and transactions.
  • Assets in the master account 60 plus UK income 62, Swiss income 64, and Belgian income 66 reconcile to omni account 70.
  • Level 5 to level 6 (lower left) reconciliation is performed in the same manner; holdings, cash, and transactions are reconciled.
  • Omni account 70 is reconciled daily to the UK sub-account 72, Swiss sub-account 74, and Belgian sub-account 76.
  • an additional process of income reconciliation only shows reconciled accrued income and paid income, which is also performed daily because of the importance of income capture to pooling and taxes.
  • FIG. 7 Reconciliation across the dashed line in FIG. 7 shows communication between the preferred GIO software described above and used in the valuation process, and the presently preferred Fundmaster software used by the custody system at the assignee, Northern Trust Bank, located in Chicago, Illinois.
  • the transaction splitter function occurs at level 6 but is based on transactions occurring at level 5, and the rebalancing function occurs at level 6.
  • Figure 8 is an expanded chart showing the transaction splitting and rebalancing software functions built into the system.
  • the system identifies any split transactions that were not based on the correct percentage ownership and any holdings that are not in line with the correct percentage ownership.
  • the system also identifies if the nominals and cash from the related split transactions do not equal the original transaction. For rebalancing transactions, the system ensures all transactions are equal and offsetting.
  • the same exemplary data used in FIGS. 5 and 6 are provided for ease and consistency.
  • the system performs three-way reconciliations to make sure that at any point in time, levels 4, 5, and 6 remain in balance.
  • the fund management system of the invention will know if any trades split or any position is not rebalanced into the correct percentages. If for any reason the accounts are out of percentage, a notification is preferably provided.
  • NAV Day, Dealing Day, and Dealing Period are defined below in Table 1 and apply according to the presently preferred embodiment of the invention.
  • Fund accounting in the preferred embodiment is performed in the back office of a banking institution.
  • the system strikes the NAV on bank funds or private-labeled funds.
  • a fund accountant is retained in the back office in any country where funds are being managed.
  • shares are also provided in the countries where customer interfacing takes place.
  • shareholder services are provided in Dublin and Luxembourg.
  • a Relationship Manager/Account Manager is provided who is the client servicing person.
  • FIG. 10 a block diagram of the presently preferred technology system infrastructure used to support the cross-border pooling system and process is shown.
  • the infrastructure 80 shown in FIG. 10 is typical for most fund accounting clients today, but includes amendments that are specific to the pooling invention.
  • the brokers 82 and the investment managers 84 trade securities back and forth as per usual. From there, all trades will capture down to the securities processing module 86, or the money will flow back to the brokers 82 for further trades.
  • the fund management system of the invention captures the information from securities processing and brings it into the portfolio accounting system 88 shown in FIG. 10.
  • the shareholder services box 90 receives information from various data sources.
  • the circle 92 in the middle of FIG. 10 represents all functions that can be provided in addition to the accounting function on the preferred system.
  • the system preferably can calculate and account for portfolio results 94; performance results 96; securities lending 98; third-party data 100, like asset set-up, pricing, etc.; corporate actions or announcements 102; and shareholder data 104.
  • the information that comes out of the system goes into a normal banking account system 110. So 5 if you're a customer of a banking institution, for example, you can log into your account, and preferably see all your investment data including that information associated with your cross-border pooling funds.
  • Investment managers preferably have the capability to access account information via the Web as well.
  • FIG. 10 The major differences in FIG. 10 that reflect the operations of the pooling system and process described herein are the trade splitting and rebalancing accounting processes shown in portfolio accounting 88, and the tax/income processing and tax reclaim shown in the securities processing 86.
  • the portfolio accounting box 88 is different because it takes into account the trade splitting and the rebalancing, which are the features of pooling that are different from typical accounting.
  • Securities processing 86 box is different because income is broken out per investor at level 4 in individual income accounts 38. For each account captured, the system processes its tax reclaim or its income collection just as if it was an individual account today. So it is income processing on custody that is different for a pooling environment, and tax reclaim which is part of income processing.
  • the brokers 82 give all of their trades to trade services 120. It's all done through the standard SWIFT communication vehicle, which uses standard file formats. For example, a purchase file format, sale file format, etc. are used. This information is communicated to trade services 120, and the hard trades 122 go into the securities processing box 86in FIG. 11. Hard trades are what come into a pooling environment (soft trades are not allowed in the preferred embodiment).
  • subscriptions and redemptions 126 flow through the transfer agent box 124 into the securities processing box 86 as shown. From securities processing 86 the data goes into the valuation system 128, which in the preferred embodiment uses the GIO software described above.
  • FIG. 1 1 provides an overview of where each function falls into the overall process.
  • This box 142 represents the additional transaction splitting and rebalancing functions described above that are provided at level 6, which have been broken out of the valuation box 128 for clarity and emphasis.
  • Table 1 below provides definitions for some of the terms and acronyms used in the above discussion: TABLE 1 - DEFINITIONS OF TERMS USED
  • FIG. 12 a flowchart showing the presently preferred derivation of a blended dividend rate is provided.
  • assets contained within the presently preferred Fundmaster accounting system 150 are lent to borrowers in the market.
  • the Fund Master accounting system 150 contains a master portfolio 152 and a plurality of income portfolios 154.
  • the Fundmaster accounting system 150 maintains, redistributes and rebalances the portfolios 152, 154 in the manner described more fully above.
  • information regarding the blended manufactured dividend rates is also provided from the Fundmaster accounting system 150.
  • the blended manufactured dividend rates (MDR's) and information about an asset are communicated to the Global Securities Lending (GSL) function 160.
  • GSL function in the presently preferred embodiment, is a proprietary computer program and system of the assignee, Northern Trust Bank. The GSL program and system is developed from the SunGard software product available on the market as described more fully above.
  • FIG. 12 the drawing is divided into three sections based upon lines a-a and b-b.
  • To the left of line a-a is the client pooling process and system described in detail above.
  • To the right of line b-b are systems and processes associated with the borrower entity.
  • Two facilities are provided at the lending agent as shown in Fig. 12 to allow access by the borrower to the systems and processes maintained by the lending agent.
  • An account (NT Trader) 162 is provided on the lending agent's system for one or more borrowers.
  • NT Trader is provided on the lending agent's system for one or more borrowers.
  • information regarding a borrower's account is stored on the GSL system 160.
  • This information, as well as the ability to communicate with the GSL system 160 is provided via a loan entry screen 164.
  • the loan entry screen is used to identify the availability of assets, and the manufactured dividend rates for those assets, to a borrower or trader 200. In this manner, assets from the pooled structure, such as securities, are made available for lending to borrowers around the world.
  • the mechanism for calculating a blended tax rate and deriving a suggested tax rate therefrom will now be described.
  • Information received from both the Fundmaster accounting system 150 and the Global Securities Lending system 160 are both fed into a Securities Lending Income Collection (SLIC) system 170.
  • the information obtained from the Fundmaster accounting system 150 includes dividend information at income portfolio levels with participant pension fund manufactured dividend rates.
  • Information received from the GSL 160 includes loan information with pooled client's suggested MDRs. This information is communicated, respectively, to a merge income portfolios box 172 and claim process box 176.
  • the merge income portfolios box 172 is used to create and calculate a blended tax rate.
  • Information from the merge income portfolio box and claim process box 172, 176 are in turn provided to the standard reconciliation process described in detail above.
  • the reconciliation process 174 shown in Fig. 12 uses the standard reconciliation, pooling and regional tax difference information to reconcile ownership percentages of the pooled assets maintained by the Fundmaster accounting system 150.
  • Reconciliations are managed in box 180.
  • the reconciliation 180 is performed via a manual investigation into differences between the GSL and Fundmaster systems 160, 150.
  • pooling differences (earnings) between the suggested rate and the blended rate are identified.
  • This information is in turn fed monthly to a reporting function 190 that exists within the GSL system 160.
  • a reporting function 192 Preferably, statements are created and reported on a monthly basis. That information is communicated to a passport reporting function 192 which is used to update individual accounts.
  • Other earning statements for a client are handled at step 194, where details of earnings from dividends of local and base currencies are derived. This information is then all fed back to the master portfolio 152 maintained on the Fundmasteraccounting system 150.
  • the override MDR input is provided in Fig. 12 to the Global Securities Lending system 160.
  • the borrower trader 200 engages in the client setup process 204 mentioned above.
  • traders review blended rates on day 1 and set a suggested rate.
  • the suggested rates are then derived in box 206.
  • the suggested rate is typically set at a higher rate than the blended rate. In the presently preferred embodiment, the suggested rate is 1-2% higher than the blended rate. Also, the suggested rate is preferably a regular lending rate, or as close thereto as possible, available in the open market.
  • a tolerance setting function is handled at step 208.
  • the tolerance function allows for a margin in transactions due to the percentage ownership changing in the pooled structure when the NAV is struck (as described above).
  • a new GSL screen (not shown) is created to set tolerances by the trader. Tolerances can be set at a country level although preferably a default tolerance will be programmed into the system. An example of country tolerances is shown in box 210.
  • an exception reporting mechanism is provided at block 212. In the preferred embodiment, an email is sent automatically when the blended rate is greater than the suggested rate or when the suggested rate minus the tolerance is greater than the blended rate.
  • Table 2 shows an example of the blended MDR calculation for an asset that is partially owned by two pension funds. Assume for this example that the first fund is an Irish fund, and it owns 33% of the assets in the fund holding the security to be loaned, and that the second fund is a United Kingdom fund, which owns the remaining 67% of the pooled assets. In such a situation, lending rates for the various countries listed in the first column of Table 2 are provided. The blended MDR is shown on the right side of Table 2. TABLE 2 - Calculatio o B e ded M
  • blended rates work is as follows: Assume there are 100,000 shares US equities on loan. Based on the ownership of the fund, for example, the loan equates to: 45,000 shares being lent from a Dutch pension scheme with a manufactured dividend requirement of 100%.
  • the suggested rate is the regular rate that is as close to 107.5% as is available in the market.

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Abstract

L'invention porte sur un système et un procédé de mise en commun de fonds de placement grâce auxquels une société multinationale permet aux régimes de prestations aux employés régis par de multiples juridictions internationales de regrouper leurs investissements en une seule entité qui investit dans divers produits financiers, y compris les dettes négociables en bourse et les titres participatifs, ainsi que d'autres valeurs mobilières. L'entité est de préférence structurée sous la forme d'un véhicule commun extraterritorial, pouvant comprendre un ou plusieurs fonds auxiliaires qui diffèrent par leur objectif d'investissement et/ou les investissements éligibles. Chaque véhicule commun est de préférence organisé sous la forme d'un CCF irlandais, d'un FCP5 luxembourgeois, d'un FGR néerlandais ou d'un autre véhicule fiscalement transparent. Les investisseurs de ces véhicules et fonds auxiliaires communs sont de préférence les régimes de prestations aux employés de la société multinationale. Une organisation bancaire ou de fiducie dûment qualifiée et habilitée à agir conformément aux lois de la juridiction applicable comme société de gestion des véhicules communs agit au nom du véhicule commun applicable. Les actifs détenus par le véhicule commun sont prêtés à un taux conseillé qui est dérivé du calcul d'un taux de dividende conjugué fabriqué ('manufactured dividend rate' ou MDR). Le MDR conjugué est calculé pays par pays et fondé sur les pourcentages de participation des investisseurs aux véhicules communs et sur le domicile de ces derniers.
EP06848259A 2006-08-23 2006-12-28 Système et procédé permettant de dériver des taux d'intérêt sur des valeurs dans un regroupement de fonds de placement Withdrawn EP2057599A4 (fr)

Applications Claiming Priority (3)

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PCT/US2006/032949 WO2007027487A2 (fr) 2005-08-30 2006-08-23 Systeme et procede de regroupement de fonds d’investissement
US11/508,471 US20070061235A1 (en) 2005-08-30 2006-08-23 System and method for pooling of investment assets
PCT/US2006/049449 WO2008024132A2 (fr) 2006-08-23 2006-12-28 Système et procédé permettant de dériver des taux d'intérêt sur des valeurs dans un regroupement de fonds de placement

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