DEPLOY LARGE PLATFORM ALLOCATIONS
WHO CAN BENEFIT
- Any fund receiving large allocations or a wave of shareholder subscriptions.
- Especially useful for small funds, sector funds, or those in less liquid asset classes.
PROBLEM
A growing share of mutual fund subscriptions are aggregated via wealth management platforms. The result can be net inflows so large that portfolio managers have difficulty putting them to work.
- Invest funds quickly, and you risk distorting your investment strategy, moving markets, and incurring high market impact costs.
- Take your time, and you face tracking error and opportunity costs while holding large amounts of cash.
SOLUTION
NAVswap pays funds a return on their cash matching the appreciation in their Net Asset Value (NAV), in effect “equitizing” their excess cash.
- The swap commences simultaneously with the allocation event, covering the full amount of the allocation (or more if there is additional excess cash; up to 15% of fund assets may be equitized).
- No cash changes hands; collateral remains with the fund and continues to earn returns.
- The equitized amount is steadily reduced as portfolio managers put cash to work.
- Meanwhile, the equitized portion earns the same return as the rest of the portfolio.
BENEFITS
- Buys time for portfolio managers to find appropriate investment opportunities and decide when to go to market.
- Helps keep investment strategies intact.
- Increases return opportunity by matching performance of invested assets.
- Avoids added transaction costs due to trading in adverse markets.
- Eliminates increased tracking error due to cash.
