The definition of a large deal may be prescribed by the regulator (e.g. any deal over
£15 000) or may be specified in the fund’s offering documents.
In such cases, the manager may (e.g. where he is experiencing net subscriptions) move
his pricing basis to an ‘offer basis’, that is, the offer price will be set at the maximum
permissible under the model we have used above. Similarly, if he experiences net
redemptions he may price on a ‘bid basis’, that is, set the bid price at the cancellation
price during a given dealing period.
It is worth noting that a manager who is advised that there is (for example) net
demand for new shares would not only consider moving his pricing policy to an offer
basis: he should also advise the investment adviser/manager, so that it can consider
what investment transactions should be undertaken to place the new cash coming into
the portfolio.
5.10 Typical offshore pricing models
Single pricing has been common for many years in mainland Europe and many of
the offshore centres. Some locations which have traditionally used dual pricing mod-
els have in recent years introduced single pricing regimes in tandem, or indeed are
moving to replacing their dual pricing regimes with mandatory single pricing. The
rationale is that many in the industry believe that single pricing improves trans-
parency by providing investors with a simpler pricing structure. This is not a universal
view by any means, and there are also many who believe that investors have no
more difficulty in understanding a fund with a buy price and a sell price, than they do
with a fund which has a single price, which is then adjusted by a percentage on pur-
chase or sale.
For the purposes of this section, we will concentrate on the typical offshore single
pricing model – that is, taking into account the level of flexibility typically permitted
in such jurisdictions.
In essence, the manager of a single priced fund will calculate a single share price
calculated on (say) the mid-market prices of the underlying assets, or whatever other
pricing basis is specified in the fund’s constitutional and offering documents. Having
used this as the basis for generating an NAV for the fund as a whole, he will then use
this to generate an NAV per share and add any appropriate buying/selling charges for
the shares to arrive at the subscription or redemption price. Commonly, managers will
sell at NAV plus 3 per cent commission. Less commonly, they may also (or instead)
apply an exit or redemption charge, for example, redeeming shares at the NAV less
(say) 1 per cent.
The model we will look at below is one that might be used by an offshore fund in a
jurisdiction allowing for a certain amount of flexibility in terms of the means of pric-
ing. Essentially, in these circumstances the regulatory approach is generally that the
manager’s approach must be:
consistently applied; and
disclosed in the offering documents.
124 Practical Aspects of Fund Management

Get International Funds now with O’Reilly online learning.

O’Reilly members experience live online training, plus books, videos, and digital content from 200+ publishers.