MANAGED FUNDS ASSOCIATION
January 22, 1998
Mr. Jonathan G. Katz
U.S. Securities and Exchange Commission
450 Fifth Street N.W., Stop 6-9
Washington, D.C. 20549
Re: Proposed Amendments to Rules Affecting Performance
or Incentive Fees; File No. S7-29-97
Dear Mr. Katz:
This letter is a response to the SECs request for comments in Release No. IA-1682 (November 13, 1997).
The Managed Funds Association (MFA), a national trade association of more than 690 members, represents the managed futures, hedge funds, and fund of funds industry. MFA membership is composed primarily of financial and commodity trading advisors, pool operators and trading managers who are responsible for the discretionary management of the vast majority of the estimated $35 billion currently invested in managed futures, as well as significant amounts invested in hedge funds and other financial and commodity-linked investments. MFA membership also includes the sponsors, investment managers and brokers for substantially all of the financial and commodity pools marketed on either a public or private basis in the United States.
Fee arrangements that contain performance or incentive provisions have been commonplace since the inception of both pooled investment vehicles and individual accounts. We conclude from this experience over the years that the benefits of performance fee arrangements far outweigh the risks. Of those benefits, in particular we find that the closer alignment of the goals of the adviser and the client, resulting from performance fee arrangements, is a most significant benefit - resulting in more efficient pricing of services and better performance.
We support the Commissions proposal to eliminate specific contractual and disclosure requirements. We support the addition of "qualified purchasers" 1 as a class eligible to enter into performance-fee contracts. We feel very strongly that the existing criteria or the proposed criteria as they relate to net worth or investment size clearly enable the SEC to make its findings under Section 205(e) that these classes of people do not need the protections of Section 205(a)(1). We feel equally strongly that it is not appropriate or warranted to eliminate the "net worth" and "investment size" criteria in favor of the single "qualified purchaser" criterion.
We applaud the SEC for undertaking changes in longstanding rules. The changes that we support will promote flexibility and competition in the marketplace 2 and benefit investors, advisers and the public as a whole.
If you have any questions, please call me.
John G. Gaine
-- Section 2(a)(51)(A).
-- Many of the largest and most successful advisors are not available to investors other than through performance fee contracts.