Chapter 19. On Structure: The Strategic Imperative
Most mutual fund investors don't understand how their mutual fund company is organized. Actually, very few of us probably give much thought to the structural organization of the companies with which we do business. Why should we care? Does it matter whether our bank is structured as a savings and loan or a commercial bank? In that case, with up to $100,000 per account insured, most of us probably shouldn't care about anything but getting the best service and the highest interest rate.
But in the mutual fund business, we ought to care. A fund's organizational structure can have an enormous impact on our returns. Yet, almost no one pays attention to this issue. The media don't get it, don't care, or have accepted the status quo. But the corporate structure of a mutual fund organization is more than a legal curiosity. It is a fundamental determinant of the relationship between the fund complex and the fund shareholder.
With one significant exception, all mutual fund complexes operate under a single structure: a group of related investment companies (mutual funds), owned by their shareholders (or, less commonly, trusts effectively owned by their beneficiaries) and governed by their directors. Each fund in the group contracts with an external management company to manage its affairs in return for a fee. The management company undertakes to provide substantially all of the activities necessary for the fund's existence: investment advisory ...