Method for aligning investor and portfolio manager financial interests

• US 20040260637A1
• Filed: 06/17/2003
• Published: 12/23/2004
• Est. Priority Date: 06/17/2003
• Status: Abandoned Application

• Current Assignee: Brandywine Asset Management, Inc.
• Original Assignee: Brandywine Asset Management, Inc.
• Inventors: Dever, Michael Paul, Fischer, Anthony Joseph, Trewella, Jeffrey Charles
• Application Number:
  US10/463,650
• Publication Number:
  US 20040260637A1
• Time in Patent Office: Days
• US Class Current: 705/36.00R
• CPC Class Codes: G06Q 30/0283 Price estimation or determination
• CPC Class Codes: G06Q 40/06 Asset management; Financial planning or analysis

Abstract

A method for aligning investor and portfolio manager interest comprising a polyfunctional fee algorithm, wherein said algorithm charges higher fees to the investor when returns are favorable and charges a lower fees to the investor when returns are not favorable.

Claims

1. A method for aligning investor and portfolio manager interest having a fee algorithm comprising a plurality of functions wherein said algorithm charges a higher fee to an investor when a portfolio return is favorable during a predefined time period and charges a lower fee to an investor when a portfolio return is not favorable during a predefined time period.

2. The method according to claim 1, wherein the favorable return is based on said return exceeding the return of a predetermined reference investment.

3. A method for aligning investor and portfolio manager interest using a plurality of functions, the method comprising the steps of:

a) calculating the difference between the return of portfolio managed by the portfolio manager over a period of time against a reference return;

b) determining from the calculated difference between the return of the managed portfolio against the reference return whether the return of the managed portfolio was favorable or not favorable;

c) if the return of the managed portfolio is determined to be favorable, calculating the compensation for the portfolio manager using a first equation, the first equation being a function of the calculated difference between the return of the managed portfolio against the reference return;

d) if the return of the managed portfolio is determined to be unfavorable, calculating the compensation for the portfolio manager using a second equation, the second equation being a function of the calculated difference between the return of the managed portfolio against the reference return, wherein the second equation has a lower rate of compensation than the first equation.

4. The method according to claim 3, wherein the favorable return is based on the calculated difference exceeding a predetermined percentage.

5. The method according to claim 3, wherein the unfavorable return is based on the calculated difference being less than a predetermined percentage.

6. The method according to claim 3, wherein the reference return is an investment index.

7. The method according to claim 3, wherein the unfavorable return is based on the calculated difference being negative.

8. The method according to claim 3, wherein the predefined time period is selected from a group consisting of:

minutes, hours, days, weeks, months, and years.

9. The method according to claim 3, wherein the first and second equations are selected from the group consisting of;

linear, quadratic, power, logarithmic, and inverse.

10. The method according to claim 3, wherein the first and second equations have the same functional form.

11. The method according to claim 3, wherein the first and second equations have different functional forms.

12. The method according to claim 3, further comprising at least one additional equation to calculate the compensation for the portfolio manager, said at least one additional equation being a function of the calculated difference between the return of the managed portfolio against the reference return.

13. The method according to claim 3, wherein the functional form of the first and second equations is linear.

14. The method according to claim 13, wherein the two slope coefficients are non-zero and different.

15. A method for aligning investor and portfolio manager interest having a fee algorithm comprising a first function that charges a higher fee to an investor when a portfolio return is favorable during a predefined time period and a second function that charges a lower fee to the investor when said portfolio return is not favorable during a predefined time period, said first function given by

(Fee)_i=a_i+b_i(portfolio return−

reference return)

and said second function given by

(Fee)_ii=a_ii+b_ii(portfolio return−

reference return)

wherein a_i, a_ii, b_ii and b_ii are coefficients of linear equations.

16. The method according to claim 15, wherein the favorable return is based on exceeding a predetermined percentage.

17. The method according to claim 15, wherein the unfavorable return is based on being less than a predetermined percentage.

18. The method according to claim 15, wherein the favorable return is based on said portfolio return exceeding the return of a predetermined reference investment.

19. The method according to claim 15, wherein the unfavorable return is based on said portfolio return being less than the return of a predetermined reference investment.

20. The method according to claim 15, wherein the predefined time period is selected from a group consisting of:

minutes, hours, days, weeks, months, years.