Hrmm. Goldman takes small stake in T.Rowe in exchange for customer access

Comments

• Sven

  September 4

  Within the guidelines in existing funds, can PE be added without notifying the shareholders first?
• yogibearbull

  September 4

  Prospectus revisions may be sufficient notifications. Many mutual funds are already investing in private-equity. There is boilerplate language on what funds are doing now or may do in future.
  
  DOL only affects 401k/403b, not regular funds. And private-equity/credit are coming to 401k/403b too.
• Observant1

  September 4

  "Frankly, it makes me uncomfortable since most retail investors have no idea how to do any DD
  into their funds and see what kind of stuff (er junk?) their portfolios are being stuffed with.
  IMO Wall Street is again trying to offload its riskier assets onto the rubes who will suffer WHEN
  (not 'if') things go south in this space."
  
  I share your concerns.
• JD_co

  September 4

  Are there any standard rules regarding mark-to-market of private holdings held within a mutual fund - or is that a case by case deal (per each Fund's prospectus)?
  
  Of course, some investors like it when the market tanks and their assets aren't written down.
• yogibearbull

  September 4

  The current SEC rule for funds is to restrict illiquid securities to 15%. But the rule hasn't been tested in the courts.
  
  There was one case where SEC fined a firm for violation of this rule, but the firm countersued that the SEC wasn't authorized to make such a rule. This year, there was a settlement and the case was dropped. So, we don't know whether in the current deregulatory environment, the SEC can make such or similar rules. And the rules on the books may only be guidelines.
  
  Notably, illiquid assets don't trade much, if at all, so issue of mark-to-market is moot.
• JD_co

  September 4 edited September 4

  yogibearbull said:

  
  
  Notably, illiquid assets don't trade much, if at all, so issue of mark-to-market is moot.

  Its odd to me that mutual funds would include private equity investments if mutual funds calculate a daily NAV. Part of the portfolio would be marked monthly, quarterly or even just annually.
  
  And as noted prior, god only knows what those PE holdings would really consist of. You could dump a lot toxicity in into those little black boxes.
  
  Interval funds aren't in high demand for a reason. Most of us do not need PE.
  
• yogibearbull

  7:11AM edited 7:18AM

  For QUOTES for less traded or illiquid securities, funds can use matrix pricing (i.e. use something similar that traded recently) or 3rd party quote services. So, for better or worse, traded/listed funds will have daily NAV. As such, illiquid securities are unsuitable for listed wrappers (listed OEFs, ETFs) and SEC has restricted them to 15% of AUM.
  
  NONTRADED funds are growing as a category. These aren't required to mark-to-market or publish daily NAV. Redemptions may be infrequent, but you can buy them through advisors anytime (there may be accredited/qualified-investor requirements). Among these, INTERVAL-FUNDS are growing the fastest. They started only in 2010s (ETFs had head start in 1990s). Here is some data from ICI Fact Book, Ch 5: BTW, MFO Premium (MFOP) includes many interval-funds (Morningstar also has the data but that's very expensive).
  https://www.icifactbook.org/pdf/2025-factbook-ch5.pdf
  
  
  
• msf

  7:48AM edited 7:53AM

  Its odd to me that mutual funds would include private equity investments if mutual funds calculate a daily NAV.
  
  We've seen this question before in a different context. Fair value pricing was also questioned by many people (including people here IIRC) a couple of decades ago.
  
  Then it was a question of how funds priced foreign securities trading on exchanges that closed hours before 4PM ET. Use a foreign security's closing (stale) price and risk material events occurring between the security's pricing and the NY 4PM close. Use fair value pricing and take on second guessing by many investors.
  
  Aside from foreign securities, there's always been a difficulty pricing bonds that may take weeks or even months before they see a trade.
  
  Same question now. Though the previous closing prices are even staler (illiquid, infrequently traded securities) and the mechanisms funds use to price their holdings may be more varied now.

  since 1940, the fund industry has become increasingly diverse and complex in terms of the asset classes in which funds invest. As a result, fair valuations have become more complicated and, in some cases, may require valuation expertise that independent trustees could not reasonably be expected to have.

  Independent Directors Council, An Introduction to Fair Valuation, October 2024.
• Observant1

  4:15PM edited 4:20PM

  deleted