Acquired Fund Fees and Expenses (AFFE)

What Are Acquired Fund Fees and Expenses (AFFE)?

Acquired fund fees and expenses (AFFE) are a detail in a multi-supervisor or fund-of-funds (FOF) prospectus that shows the operating expenses of the underlying funds. This turned into a requirement as of January 2007. This detail is currently included with the fund's fee schedule under the "fees and expenses" heading and in its prospectus.

Understanding Acquired Fund Fees and Expenses

Acquired fund fees and expenses are associated with multi-supervisor and fund-of-funds options that have more complex fee structures. These fees increase the total annual expenses of a fund and incorporate management fees paid to numerous managers.

A fund of funds (FOF) is a pooled investment fund, for example, a mutual fund or hedge fund that doesn't pick its own investments. All things being equal, these FOFs invest in other mutual funds or hedge funds. All in all, its portfolio contains different underlying portfolios of different funds managed by their own portfolio managers. These holdings supplant any direct investments in assets like bonds, stocks, and different types of securities. The fund of funds (FOF) strategy means to accomplish broad diversification and fitting asset allocation with investments in an assortment of fund categories that are undeniably wrapped into one portfolio.

An investor who purchases a FOF must pay two levels of fees. Just like an individual fund, a FOF might charge management fees and a performance fee, albeit the performance fees are ordinarily lower than individual mutual funds to mirror the fact that the greater part of the management is designated to the sub-funds themselves.

SEC Regulation and Disclosure

In January 2007 the Securities and Exchange Commission (SEC) started founding new provisions to the Investment Company Act of 1940, which made it more straightforward for fund companies to register fund-of-funds options. The SEC broadened legislation under Section 12(d)(1) of the 1940 Act for multi-director funds. The SEC likewise amended its registration statement forms to remember extra detail for the expenses for these funds. Specifically, registration statements presently expect that fund managers incorporate "acquired fund fees and expenses" as an additional fee disclosure requirement for multi-managers, which must be remembered for the complete fee schedule found in the prospectus.

Prior to 2007, fund-of-funds investing was just permitted under specific conditions approved by the SEC. In many cases, these fund-of-funds investments would report expense ratios of zero. Disclosure was deceiving, introducing that there were no expenses and reporting that there would be operating expenses incurred by the different underlying funds in the portfolio.

The new AFFE requirements presently accommodate more transparent disclosure of the combined connections and expenses incurred by shareholders. The AFFE detail is added to a fund's fee schedule and is notwithstanding other standard expenses of a fund. AFFE is laid out as an extensive fee comprised of the individual fees the investment advisor consents to pay to the [multi-managers](/numerous managers). AFFE can go from 0.02% to 10% depending on the agreements with individual managers.

Model: Neuberger Berman Absolute Return Multi-Manager Fund

The Neuberger Berman Absolute Return Multi-Manager Fund gives one illustration of the fee organizing found in multi-director funds. The Fund is an open-end mutual fund offering Class A, Class C, and institutional shares.

Standard fees apply to the fund with management fees going from 1.92% to 1.81% across share classes. Distribution fees are charged for the Class An and Class C shares at 0.25% and 1.00%, separately, with no distribution fee for institutional shares. Total other operating expenses range from 1.04% to 1.02%. Acquired fund fees and expenses round out the last fee expense detail for the Fund, with all share classes paying a 0.05% fee. Total annual expenses with waivers range from 3.94% to 2.83%.

Features

• Acquired fund fees and expenses (AFFE) let investors of a fund of funds (FOF) comprehend the amount they are paying in management fees to the portfolio funds that the FOF invests in.
• Run of the mill AFFE can run up to 10% depending on the types of funds and their associated fees that the FOF holds.
• AFFE shows up as a mandatory detail on the fund's fee schedule and recognizes the more complex and layered fee structure that accompanies multi-director investment.