What are Acquired Fund Fees and Expenses?

Acquired Fund fees and Expenses (AFFE) is a financial term that describes the operating expenses incurred by an underlying fund of a Fund of Fund (FoF). AFEE outline fees and expenses attributable to underlying funds in FoF. A multi-manager of FoF uses AFFE as a line item in reporting the operating expenses of underlying funds.

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How Do Acquired Fund Fees and Expenses Work?

Acquired Fund fees and Expenses (AFFE) is a reported item in a FoF prospectus which became a requirement in 2007. AFFE reports fees and expenses that are attributable to multi-manager and fund-of-funds options. The goal of making AFFE a requirement is to ensure and stimulate transparency for investors in the market, especially investors that deal with funds with complex structure. Before AFFE reporting was mandated, it was a popular belief that underlying funds have no expenses, neglecting the expenses of multi-manager. The 'fees' and 'expenses' included in the line item are management fees that multiple managers receive.

SEC Regulation

The Securities and Exchange Commission (SEC) following the provisions of the Investment Company Act of 1940 mandated Acquired Fund fees and Expenses (AFFE). It became a registration requirement that fund managers include "acquired fund fees and expenses", including fees paid to multiple managers when compiling a comprehensive schedule. Before 2007, FoF investments are claimed to have no expenses and thereby reported as zero. Also, disclosure before 2007 was not transparent enough since it presented no expenses reporting for underlying funds. However, with AFFE as a new requirement, transparency is enhanced in disclosures. As disclosures now contain standard expenses of a fund, fund's fee and other expenses incurred by shareholders. multi-manager and fund-of-funds options is the Neuberger Berman Absolute Return Multi-Manager Fund. In this multi-manager fund structure, standard fees are recorded, so also management fees between 1.92% to 1.81% depending on the class of the shares. The classes of shares offered in the open-end mutual fund are Class A, Class C and institutional shares. Included on the fund structuring is the distribution fee for class A shares which was 0.25% while Class C shares had a 1.00% distribution fee. All operating expenses are also accounted for in the fund structuring before the total annual expenses are estimated.