Sample financial translation

The fund charges 1.30% a year, up to 1% more when you put money in, and keeps 20% of anything it earns above a set target.

This is the document a fund gives you when it is asking for your money. The fund lends to businesses and passes the interest back to the people who invested. It is open only to wholesale investors, a legal label for people and companies above a certain size, and no regulator has checked what it says.

What it costs

• The management fee is 1.30% a year. On the $100,000 minimum that is $1,300 a year, charged whether the fund makes money or loses it.
• There is an upfront fee of up to 1% when you put money in. On $100,000 that is up to $1,000, paid once. It applies if you go through a distributor rather than to the fund directly, and the manager can waive it.
• Running costs are capped at 0.55% a year, up to $550 on $100,000. That pays the trustee, the accountants, the lawyers and the registry. The manager pays anything above the cap.
• The cap does not cover everything. Costs the fund calls extraordinary have no limit at all, and the fund counts distribution fees as extraordinary.
• The performance fee is 20% of what the fund earns above a target. The target is the central bank cash rate plus 5.0%. If the cash rate were 4%, the target would be 9%, and the manager would keep 20% of anything above 9%.
• Every figure here is before GST, so the amount charged is higher than the percentage says.
• This summary does not show how any of the fees are worked out. It points to a later section for that.

What you have to put in

• The smallest amount the fund will take is $100,000. After that you can add $1,000 a month or more.
• You also have to keep $100,000 in. You cannot take money out and stay in with less than that.
• The manager can lower or waive both amounts, and the document does not say when it does.

Getting your money out

• You cannot sell this fund to another investor on a market. To get money out you ask the manager to buy your units back.
• Each unit is locked for its first month. The document calls these redemption locked units. Money added every month arrives in batches, and each batch has its own month to run.
• There is no cooling off period. Once the money is in, the only way out is to ask the manager.
• The fund suggests staying in for 2 to 5 years. That is a suggestion printed in the document, not a term you agree to.
• You can hand your units to someone else instead of cashing them in. The buyer has to be a wholesale investor too, and the trustee has to agree.

Where the money goes

• Your money does not go to the businesses. It buys units in the fund. The fund lends to the businesses, the businesses pay interest, and what is left after the charges comes back as income.
• A trustee legally holds the fund and issues the units. A manager decides which businesses to lend to. A custodian holds the assets. All three are paid out of the fund.
• Getting paid depends on those businesses repaying their loans. The document names what can go wrong: payments arriving late, and losing the money that went in.

What is not attached to this fund

• Because it is open only to wholesale investors, the fund does not have to give you the disclosure document an ordinary investor would receive, and no regulator has reviewed this one.
• There is no government compensation scheme behind it. If the fund or the companies running it failed, nothing would refund the money.
• There is no risk score and no table of best and worst outcomes. Documents of this kind do not have to print either one. Nothing in this one puts a number on how much you could lose.

Deep-dive questions for your financial adviser

1. 1

   The performance fee is 20% above the cash rate plus 5.0%. What was that target over the last twelve months, and how much performance fee was actually charged?

   What this is asking: What the performance fee has cost in practice, not in theory.

   A clear answer covers: A target figure for the period, and the fee actually taken.

   Why it matters: The document gives the formula and no amount.

2. 2

   Ordinary costs are capped at 0.55% a year, and costs the fund calls extraordinary are not capped. What was charged outside the cap last year?

   What this is asking: The size of the one charge with no ceiling.

   A clear answer covers: An amount, and what it was spent on.

   Why it matters: Every other charge in the document has a stated limit. This one does not.

3. 3

   The minimum to stay invested is $100,000. If I take out enough to fall below it, what happens to the rest of the money?

   What this is asking: Whether taking some out forces all of it out.

   A clear answer covers: What the trustee does when a holding falls under the minimum.

   Why it matters: The document sets the minimum and does not say what happens when it is missed.

4. 4

   The upfront fee of up to 1% applies through a distributor and can be waived. Am I being charged it, and who receives it?

   What this is asking: Whether this fee applies here, and where it goes.

   A clear answer covers: A yes or no with an amount, and the name of whoever receives it.

   Why it matters: On $100,000 it is up to $1,000 before anything is invested.