The Income Value Account: Gross vs Net Returns

Date Added: November 23, 2017 | Comments (0) | Filed under: Blog

Someone asked why we have been reporting our Income Value Strategy returns on a gross basis when all of our other reporting (legacy capital accumulation business) is done on a net basis.

The explanation is simple. The Income Value Strategy, offered through segregated managed accounts(SMAs), was started with my own capital in March of 2016 when I invested $1 million in the strategy.  While other investors have subsequently opened Income Value Accounts the fact that the management fee is on a sliding scale depending upon the amount of money invested (see below), and given the fact that this strategy is only 18 months old it is difficult to present a meaningful composite of like account returns as we have varying amounts of capital on deposit from investors whom have started at various start dates over the past 18 months. This means they are paying fees at different rates, and many have only become investors in the past several months.

As we open more accounts we will be able to convert to reporting a meaningful net number as we do for the rest of our business.

However, knowing the gross return for my own account from inception (19.8% March 1, 2016 to December 31, 2016 and 6.8% January 1 2017 to September 30th, 2017 ) one can easily figure out what their net return would have been using varying deposit amounts had they invested as of the start date using the fee schedule below

Bottom line is that the strategy is delivering very strong returns despite its wide diversification and despite the fact that fully 50% of its assets have been sitting in cash and cash alternatives for the entire period and we are completely transparent with our gross return and fee structure – even presenting the results of the portfolio manager’s (me) personal portfolio.

Scott

Fees:

  • Management fee (per annum):
  • 2.00% on the first $1,000,000
  • 1.75% on the next $1,500,000
  • 1.50% on the next $2,500,000
  • 1.25% on the amount above $5,000,000
  • Performance fee:
  • 20% of the amount by which the net performance of the Account over the last 12 months exceeds the Hurdle Rate, subject to a High Water Mark.The Hurdle Rate is equal to 2.5% plus half the average rate of the Government of Canada 5 year bond over the last 12 months.

To find out more about the Income Value Account strategy contact me at connect@takota.com


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