Commingled Fund - Explained
What is a Commingled Fund?
Written by Jason Gordon
Updated at October 3rd, 2021
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Table of Contents
What is a Commingled Fund?How Does a Commingled Fund Work?Academic Research for Commingled FundWhat is a Commingled Fund?
A commingled fund is a type of investment fund which invests the capital of its participants in other different investment funds. An investment fund can directly invest in financial products like stocks and bonds. Commingled funds don't invest directly in such assets but instead invest in other investment funds which then usually invest in these assets.
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How Does a Commingled Fund Work?
An investment fund is regarded as a commingled fund if a majority of its funds is invested in other investment funds. Also, this type of fund is required by the law to invest a minimum amount in two different investment funds without this investment exceeding 45% of the primary assets of the funds in any of them to be considered a commingled fund. A commingled fund is exempted by law from the fiscal penalty of leaving an investment fund. These commingled funds are created with the aim of optimizing results. They reduce both monetary costs and time and effort costs since it is easier to analyze how a fund behaves than analyzing the evolution of the set of assets that make up its portfolio. The commingling funds increase profits because they create time to spend conducting an in-depth analysis of the assets that the managers consider more appealing. Some of the advantages that funds of funds provide investors with include:
- It allows the investment of individuals to be diversified in different funds. An investor having limited capital may not be able to make an adequate diversification, but he can hire a commingled fund to carry out this diversification.
- Fewer conflicts of interest. The funds of funds are more independent than average investment funds since they have funds from various entities and so it is difficult for there to be conflicts of interest.
- Managers are specialized in the analysis and selection of funds. Usually, the fund managers are specialists in selecting and analyzing funds. They are experts in that field and not just managers of traditional investment funds.
The commingled funds also possess some various disadvantages to the investors. These include:
- Higher commissions: Investing in different funds requires the payment of more commissions.
- They may not be independent: If a commingled fund decides to invest in the funds of the same financial group, the risk would significantly increase.
- The investor does not control which assets he invests in: An investor is aware of the type of funds he invests in but has no control over the assets that these funds operate and this makes it a depersonalized investment.
Academic Research for Commingled Fund
- Governance of Islamic banks, Nienhaus, V. (2007). Handbook of Islamic banking, 1, 129. This paper attempts to understand the current governance practices and the governance structure of Islamic banks with the objective of providing relevant information in guiding the future development of the governance system for IBs.
- Some additional evidence on the performance of commingled real estate investment funds: 1972-1991, Brueggeman, W., Chen, A., & Thibodeau, T. (1992). Journal of Real Estate Research, 7(4), 433-448. This paper investigates the investment performance of two commingled real estate investment funds over the last two decades and presents results which indicate that these funds offer excellent portfolio diversification potential and provide a good hedge against inflation over the entire period of study.
- Tracing, Commingling, and Transmutation, Oldham, J. T. (1989). Family Law Quarterly, 219-252. This paper introduces a hybrid system of divorce that permits the division of only the marital property at divorce unless great hardship results and in that case some of the nondivisible separate estate of one spouse can be awarded to the other.
- Piercing the corporate veil: an empirical study, Thompson, R. B. (1990). Cornell L. Rev., 76, 1036. This article examines the piercing of the corporate veil which is used to describe the judicially imposed exception to this principle by which courts disregard the separateness of a corporation and hold a shareholder responsible for the corporation's action as if it were that of the shareholder.
- Common Trust Funds, Saxon, J. J., & Miller, D. E. (1964). Geo. LJ, 53, 994. This paper defines a common trust fund which is a pool of investment fund that is managed by the trust department of a bank. It is the same as a mutual fund although the participation is limited to the people having trust accounts.
- The effect of benchmark choice on risk-adjusted performance measures for commingled real estate funds, Neil Myer, F., & Webb, J. (1993). Journal of Real Estate Research, 8(2), 189-203. This paper examines the portfolio performance of forty-seven commingled real estate funds through the use of some different sets of real estate benchmarks and the multifactor Jensen alpha measure.
- Price discovery in American and British property markets, Barkham, R., & Geltner, D. (1995). Real Estate Economics, 23(1), 21-44. This study attempts to examine the securitized and unsecuritized commercial property markets in the US and the UK to get evidence of price discovery.
- Real estate investment funds: performance and portfolio considerations, Brueggeman, W. B., Chen, A. H., & Thibodeau, T. G. (1984). Real Estate Economics, 12(3), 333-354. This paper utilizes a data set that consists of returns from two continuously operating commingled real estate funds to present the results of a study that deals with various issues affecting real estate investments.
- Do we need a statewide appraisal peer review system?, Smolen, G. E. (1994). The Appraisal Journal, 62(1), 86. This paper attempts to determine the necessity of peer review which is the evaluation of the work done by one or more people with the same expertise as the producers of the work.
- The Advance Fee Payment Dilemma: Should Payments Be Deposited to the Client Trust Account or to the General Office Account, Brickman, L. (1988). Cardozo L. Rev., 10, 647. This paper attempts to solve this dilemma by suggesting that if the property is in the form of funds, fiduciary safeguards require the deposit of the funds to a client trust account.
- Tracing commingled proceeds: The metamorphosis of equity principles into UCC doctrine, Barnes, R. L. (1989). U. Pitt. l. Rev., 51, 281. This article presents a summary of the history of the pre-Article 9 law that govern the security in personality and whose development reflects the development of highly sophisticated consumer and commercial transactions.
- Standardization of Securities Regulations: Rehypothecation and Securities Commingling in the United States and the United Kingdom, Deryugina, M. (2009). Rev. Banking & Fin. L., 29, 253. This paper major on hedge funds and evaluates the impacts of US and UK regulations that govern client asset commingling and rehypothecation on hedge fund administration, suggesting that the US approach is superior and should, therefore, be adopted internationally.