PhD-FDEF The Faculty of Law, Economics and Finance DISSERTATION. Defense held on 20/01/2012 in Luxembourg. to obtain the degree of

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3 PhD-FDEF The Faculty of Law, Economics and Finance DISSERTATION Defense held on 20/01/2012 in Luxembourg to obtain the degree of DOCTEUR DE L UNIVERSITÉ DU LUXEMBOURG EN SCIENCES FINANCIÈRES by Jan Jaap HAZENBERG Born on 14 March 1965 in The Hague (the Netherlands) INVESTMENT FUND GOVERNANCE AN EMPIRICAL INVESTIGATION OF LUXEMBOURG UCITS Dissertation defense committee Dr. Christian Wolff, dissertation supervisor Professor, University of Luxembourg Dr. Richard Goddard Associate, The Directors Office Dr. Jaap Koelewijn Professor, Nyenrode Business Universiteit Dr. Thorsten Lehnert, Chairman Professor, University of Luxembourg Dr. Isabelle Riassetto, Deputy chairman Professor, University of Luxembourg

4 Jan Jaap Hazenberg, Wassenaar 2012 ISBN Cover Design: Board seats by Datawyse and Jan Jaap Hazenberg Production: Datawyse bv

5 For Florien, Suzette and Bouke

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7 Acknowledgements It was in the autumn 2008, around the time of the collapse of Lehman Brothers and thus in the midst of the financial crisis, that I started thinking again about pursuing a PhD in Finance. Again, because this was a thought that had been in the back of my mind since I graduated from university in Although it had been a persistent ambition, it had never become concrete. Two things were different this time. The first was that I had the feeling it was now or never. This was the result of the mix of the right circumstances at work and in my private life, combined with a feeling of unrest, probably stemming from a mild form of midlife crisis. The second was that I knew what I wanted to research and write about, namely investment fund governance. Based on reading earlier research on the topic, I soon discovered that there were several studies on the governance of U.S. funds, but that there was hardly anything on European funds. That seemed to be the perfect gap to fill. The next steps followed quickly. In May 2009, I wrote the first draft for the PhD proposal. In the summer of that year, I convinced my wife, Odette, that my plan was sound and that it would be possible to combine work, family and this new hobby. In that same period, my employer, ING Investment Management, also proved to be supportive and allowed me to combine pursuing this research project with my regular work. In October 2009, I teamed up with Professor Dr. Christian Wolff as my supervisor. The two years that followed can be characterised by long working hours and huge satisfaction. I enjoyed the relatively lonely activity of gathering the required data and doing the research, often until late at night. At the same time, the study brought me into contact with many people who I had not met before, while strengthening ties with others. Almost everywhere I was greeted with open arms and supported in my pursuit of data, information and knowledge. This was a fantastic experience. In the period that I worked on my dissertation, the financial crisis was far from over and markets continued to be volatile. While financial institutions restructured their debt and the U.S. subprime mortgage crisis developed into a government debt crisis, I built up an enormous amount of debt as well. In my case, it is not a debt that is measured in monetary terms, but one that consists of favours to be repaid one day. Those are so many and to so many different people, that I cannot mention all of them here. My gratitude is great, nonetheless, and I will not forget. What follows is a list of my biggest creditors: Lipper, Morningstar, MSCI and PwC for making data available, which was necessary for the quantitative analyses. Forty-one board members of Luxembourg UCITS for taking the time to be interviewed, thereby providing colour to my quantitative results. I promised anonymity, so I cannot disclose their names. ING Investment Management, my employer, and, especially, Rick Faase, my manager, for allowing me the flexibility to combine my regular job with my PhD research. 5

8 Edwin Terink, who joined my team at ING as an intern and was extremely valuable as research assistant for my PhD project. Probably the best hire I ever made. Christophe Becue, Tina Glasner and Wim de Roos for kindly reviewing parts of my text critically, using their knowledge and experience to supplement mine. Richard Goddard and Bart Renner for patiently reviewing all texts and supporting me in my endeavour with enthusiasm and ideas, while also giving blunt and critical feedback, as only true friends can. Members of the Dissertation defense committee for their careful reading and constructive remarks. Christian Wolff, dissertation supervisor, for having the trust in me that, as a parttime PhD student, I would be able to pull it off and for supporting and guiding me all the way through. My parents, be it through nature or nurture (or the combination of both) for giving me ambition and a curious mind, necessary conditions for any academic research. Last but not least, my wife, Odette, and my children, Florien, Suzette and Bouke. I can never thank you enough for giving me the possibility to combine our family life with my hobby. Without your understanding, support and love, that would not have been possible. 6

9 Content Acknowledgements 5 Chapter 1 Introduction and background 9 Chapter 2 Regulation and best practice 49 Chapter 3 Earlier empirical research 93 Chapter 4 Development of governance 137 Chapter 5 Governance and costs 163 Chapter 6 Governance and performance 207 Chapter 7 Survey 243 Chapter 8 Summary and conclusions 263 Appendix 1 Sample: Promoters and umbrellas 275 Appendix 2 Sample: Sub-funds 285 Appendix 3 Survey: Questions and answers 295 References 301 Biography 311 7

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11 Chapter 1 Introduction and background Welke Effecten, ten Comptoire van den Administrateur bewaard zullen worden, in eene suffiçante yzere Kist met drie different werkende Slooten voorzien, waar van onder ieder der Heeren Commissarissen en gemelde Notaris, eene Sleutel zal blyven berusten; in welke Kist mede jaarlyks, de respectivelyk afgelost en geroyeert wordende Aandelen, en ingetrokken Coupons, zullen worden gelegt. 1 1 Translation from Dutch: The securities will be kept at the office of the administrator in a sufficient iron chest with three different locks, of which a key will be held by each of the directors and the notary public mentioned. In the same chest, also respectively the repaid and redeemed shares (in the fund) as well as withdrawn coupons will be placed. Text is a section from article X of the offering document of the first investment fund in history, launched in Amsterdam in 1774 under the name Negotiatie onder de Zinspreuk Eendragt maakt Magt (Fund under the Motto Unity is Strength). The whole of article X is shown as figure

12 CHAPTER Introduction Millions of investors worldwide have entrusted assets to investment funds 2 as part of their financial planning, with the goal of securing a healthy financial future for themselves and their families. Assets under management of investment funds worldwide as of the end of 2009 were estimated at EUR 15.9 trillion. Investment funds provide investment solutions to individuals and play an important economic role intermediating savings and investments. This role makes the investment funds sector highly relevant, economically and socially. One of the benefits of, and reasons for, investing in investment funds is professional portfolio management. Portfolio managers managing investment funds actively aim to outperform the market (market indices), passive managers (index funds) and eachother (their peer group). Investors investing in actively managed funds that are successful in achieving those aims, will see their wealth grow faster than those investing in passive or unsuccessful funds. Thus, they can save less or reach their financial goals sooner. Although some fund managers have been very successful in achieving superior performance for their investors, even to the extent that they have become stars in their own right, the performance of investment funds as a group has been disappointing. Academic research shows that the average investment fund underperforms the market and passive funds. Swensen (2005, p. 213) formulates the critics view as follows: Equity mutual-fund returns in recent decades provide a textbook example of the negative-sum game of active management. Recall that active managers as a group must underperform the market by a margin equal to the cost of trading (market impact and commissions) and the burden of fees. The theoretical possibility exists that mutual funds as a group might exhibit superior performance, with other market players producing shortfalls sufficient to counterbalance the superior mutual-fund results. Unfortunately for the mutual-fund investor, U.S. equity markets contain insufficient mullets for fund managers to exploit for active management gains. Because well-informed institutions define the market, would-be-market-beating investors as a group face the unwelcome prospects of losing to the market by the amount that it costs to play the active management game. Conflicts of interest and high fees are often cited as reasons for the disappointing results of the average investment fund. The primary stakeholders of an investment fund are the fund investors and the fund management company. Their interests are not necessarily aligned and can even conflict. This conflict stems from a typical agency problem, where, in this case, managers (agents) manage assets on behalf of investors (principals). The investor invests in a fund aiming for a maximum risk-adjusted return, 2 An investment fund pools assets of investors in order to invest these collectively for their benefit. The term investment fund or fund will be used throughout this dissertation. However, where U.S. studies are quoted, these generally use the term mutual fund. Studies of the OECD and IOSCO, also quoted in this dissertation, use the term Collective Investment Scheme, in short CIS. For the purpose of this dissertation, these terms can be seen as equivalent. 10

13 INTRODUCTION AND BACKGROUND net of costs. The fund management company receives a management fee, which is a percentage of the assets under management. Higher fees are in the interest of the fund management company, but are at the expense of the investor s return. The inherent conflict of interest has led to a group of critical followers of the fund management industry, both among practitioners and academics. The position of the critics with regard to the conflict of interest between investors and the fund management company is articulated well by Ambachtsheer (2005, p. 31): In my judgment, the premier agency issue in the financial services industry continues to be the inherent conflict that results from for-profit organizations providing management services directly to millions of mutual fund investors. The combined forces of acute informational asymmetry and pronounced principal-agent problems logically lead to many clients paying too much for too little. These forces, and their adverse effects on clients, continue to be a major public policy issue today, despite being identified by Jack Bogle 3 as early as More than 50 years later, despite token efforts by securities regulators, this issue has yet to be addressed in the fundamental manner it deserves. When an investor is not satisfied with the operations or results of an open-end fund, he can always sell his units in the fund at the net asset value. This possibility of investors voting with their feet is a disciplining force that helps to ensure that the fund management company acts in their best interest. Furthermore, regulations are designed to ensure that fund management companies act in the investor s best interest. Given the economic and social relevance of the investment fund industry and the inherent conflicts of interest present, it is not surprising that investment funds are strictly regulated, with investor protection as the main area of focus. In the mitigation of the conflicts of interest between fund investors and the fund management company, funds boards of directors have a role to play. In some jurisdictions, such as the U.S., by law, a certain minimum proportion of the directors must be independent from the fund management company. These independent directors are positioned as the guardians of the investor s interest. In other jurisdictions, such as Luxembourg, there is no requirement to have independent directors. This dissertation is an economic study into investment fund governance and the added value of board members who are independent from the fund management company. Central to this dissertation is the position of the fund investors and the question of whether or not they benefit from independent governance. Two aspects of investment funds will receive the most attention, specifically costs and investment performance. The empirical part of this study uses a sample of funds domiciled in Luxembourg to analyse the relationship of governance characteristics with costs and investment performance. The central research question of this dissertation is formulated in section 1.2. In that same section, the contribution of this dissertation to the literature on Finance is also described. Sections 1.3 to 1.6 are meant to provide relevant background to the 3 John C. Bogle is the founder and retired CEO of The Vanguard Group, one of the largest U.S. fund management companies. The ownership structure of Vanguard is different from most fund management companies in that it is owned by the funds it manages. In 1975, Vanguard launched the first index fund, the Vanguard 500 Index Fund. 11

14 CHAPTER 1 central research question. Section 1.3 describes the development of the investment fund, by highlighting some of the most important product innovations in its history, as well as governance aspects of these funds. In section 1.4, the benefits of investment funds will be listed, several of which are similar for the modern, open-ended investment fund, distributed on a cross-border basis, and its ancestors from earlier centuries. In that same section, the economic relevance of the investment fund sector will be addressed, along with statistics on the development of the assets under management in the last decades. In section 1.5, fund performance and fund flows are the main areas of focus, while section 1.6 explores conflicts of interest in further detail. The goal of these two sections is to provide insight into how boards of directors can add value for investors. The structure of the rest of the dissertation is provided in section Monitoring forces and the central research question There are numerous potential conflicts of interest present in the investment fund industry between the investors and the other stakeholders, most notably the fund management company. Without any or sufficient monitoring, these conflicts of interest could lead to suboptimal investment performance, either as a result of excessive management fees and other costs, or as a result of behaviour by fund management companies that is suboptimal for investors. This is depicted in the centre of figure 1.1. As shown in this figure, there are three types of monitoring forces that are active in helping to align the interests of investors and the fund management company. The first monitoring force is that of market forces. By the possibility of withdrawing or adding assets to a fund, depending on whether investors like or dislike the operations and results of the fund, they force the fund management company to act in their best interest. Investors may buy or sell the fund at their own initiative or with help from their advisors. In other words, the recommendations of advisors and distributors also form part of the market forces exercising oversight over the investment fund industry. However, the effectiveness of this monitoring force might be limited in reality, due to conflicts of interests between the investor and his advisor. Monitoring as exercised by, for example, consumer organisations and the press, can also be seen as part of the market forces. High market forces help to align the interests of investors and the fund management company. In that case, good performance which is the primary interest of investors is also what the fund management company strives for as an effective method to increase fund size and revenues. The second monitoring force is that of regulators, operating in the legal and regulatory framework of the domicile in which the fund is established. IOSCO (2000, p ) states that: The regulatory mechanisms which are used to address conflicts of interests share a common regulatory objective, which is to ensure investor protection by eliminating or minimising the adverse impact of any possible conflicts of interest of the CIS operator and its affiliates on the CIS and its investors. The range of regulatory mechanisms that are used by member jurisdictions to address conflicts of interests include: 12

15 INTRODUCTION AND BACKGROUND - general duty imposed on the CIS operator to act in the best interests of CIS investors; - review/oversight of a CIS operators activities by an independent third party; - direct prohibitions of transactions which are likely to give rise to conflicts of interests; - review and/or approval of certain transactions by the regulator or an independent third party where they raise conflicts of interests; - disclosure of information relating to conflicts of interests to investors and/or regulators; - detailed standards and procedures that must be followed by a CIS operator; - restrictions relating to certain conduct; - use of Codes of conduct that deal with conflicts of interest situations; and - regulator s power to monitor and impose sanctions in appropriate cases. The third monitoring force is that of the fund s own governance framework, which includes, for example, the fund management company s risk management and compliance function, the fund s depositary and auditor, as well as the fund s board of directors. Meschke (2007, p. 6 7) sees a role for fund boards only when market forces fail: In a competitive market with reasonably informed fund investors, market discipline imposed by their purchase and redemption decisions will sufficiently mitigate conflicts of interest between advisors and investors. In the presence of informational and institutional frictions, board oversight of mutual funds may potentially serve an important economic purpose. Although its influence might be indirect, the board can have an influence on the performance of a fund, for example, by not approving excessive fees or by urging the fund management company to take action in the case of continued underperformance. Regulators High costs Conflicts of interest Suboptimal performance Suboptimal behaviour Market forces Fund governance Figure 1.1: Investment funds monitoring forces 13

16 CHAPTER 1 The three different monitoring forces identified can influence and enforce eachother, which is graphically depicted in figure 1.1 by the arrows between these monitoring forces. For example, the fifth regulatory mechanism of IOSCO mentioned above, disclosure of information, is there to facilitate market forces being able to do their monitoring work. Examples are requirements to clearly disclose costs and risks in a fund s prospectus, which investors can then interpret and respond to. The second mechanism, independent oversight, is part of the regulatory forces and imposes requirements on how funds may organise their governance. In some jurisdictions, such as the U.S., the requirement to have independent directors on the boards is such an example. In other jurisdictions, such as Luxembourg, there is no requirement for the fund directors to be legally independent. Nevertheless, many funds in Luxembourg have voluntarily appointed independent board members. Market forces can also influence fund governance. If investors see independent governance as superior and direct their investments to funds with independent boards, it would force other fund management companies to organise their funds that way as well. Furthermore, if investors value independent boards, one would expect that fund management companies with funds with independent boards to use that characteristic as a key sales argument. Whether or not boards with independent board members are more effective for investors in their monitoring and decision-making than boards with dependent board members only, and thus, whether independent board members add value for investors, is an empirical question. Which brings us to the central research question of this dissertation: Are (more) independent boards more effective for investors, leading to lower costs and/or better investment performance? The central research question is relevant from at least two perspectives: Fund selection. Investment funds provide certain services to investors, in particular, professional portfolio management and risk reduction by means of diversification. Small differences in annual performance can make a significant difference in the amount of capital that is available at the end of the investment horizon. If more independent governance leads to or helps achieve better performance, as a result of lower costs or otherwise, then that is of high social-economic relevance. In that case, investors should select investment funds by taking into account fund governance characteristics. Regulatory implications. In Luxembourg, there is no regulation imposing funds to have independent board members. Funds in the U.S. are required to have independent board members. These independent directors have been assigned certain responsibilities, such as the annual approval of the fund s investment advisory contract, including the advisory fee. Following scandals in 2003, the U.S. Securities and Exchange Commission (SEC) aimed to impose additional regulations, increasing the required minimum of independent directors from 40% to 75% and introducing a mandatory independent chairman. However, these new regulations were vacated in court on the basis that the SEC had not provided sufficient evidence that the new rules could be expected to be effective. When funds with independent boards 14

17 INTRODUCTION AND BACKGROUND would achieve better results for investors, but market forces are somehow unable to enforce such governance best practices across the industry, there would be a role for lawmakers and regulators to enforce (more) independent governance. This dissertation contributes to the literature in Finance in several ways. By using a sample of Luxembourg-domiciled funds for the empirical part of the study, the dissertation sheds light on a fund domicile that is of high economic importance, but has received little academic attention to date. European-domiciled funds in general, and Luxembourg funds in specific, are hugely underrepresented in empirical studies in the field of Finance when compared to funds domiciled in the U.S. Whereas the ratio of assets under management of the U.S. and European funds is approximately 5:3, the relative number of empirical studies analysing European fund data is much lower. Indicative is that out of the 50 academic, empirical studies referred to in this dissertation, only three use European data, which implies a U.S. to European ratio of 47:3. Presumably, this is at least partly a consequence of academic quality data being readily available for U.S. funds, but not for European funds. Indeed, much effort had to be put into gathering data for this study of Luxembourg-domiciled funds and ensuring that the quality of the data was good. As far as could be determined, this study is the first empirical study into the effectiveness of boards, analysing a sample of European-domiciled open-end funds. In Europe, a different legal and regulatory framework is in place and different governance practices apply than for U.S.-domiciled funds, which were analysed in earlier empirical fund governance studies 4. Compared to other European fund domiciles, Luxembourg is an ideal testing ground for such a study, because the market has sufficient size to form a meaningful sample of fund management companies and funds operating in a single legal and regulatory environment. As part of the study, the development of fund governance in Luxembourg was analysed as well, in particular, whether boards of Luxembourg UCITS have become more independent in the past decade. By using Luxembourg fund data for the empirical part of the dissertation, this study provides further evidence for the discussion about the effectiveness of independent versus dependent boards. The most notable difference between fund governance in the U.S. and Luxembourg is that in the U.S., having independent board members is mandatory, whereas in Luxembourg, that is not the case. In Luxembourg, many fund boards do have independent members, but on a voluntary basis. In studies of U.S. fund governance, the level of independence in funds is always above the regulatory minimum. In the sample of Luxembourg funds analysed for this dissertation, there are funds without any independence and funds with independent board members on their boards. In fact, of the 45 top cross-border fund management companies at the end of 2009, approximately half had at least one non-dependent director on the board of their flagship umbrella fund 5, whereas the other half had dependent board members only. This different and, perhaps stronger, distinction between the different governance structures of funds in the sample may lead to new insights. 4 See Chapter 3. 5 An umbrella fund, in this dissertation also referred to simply as an umbrella, is a single legal entity consisting of more than one compartment, each with a different investment policy. These compartments are referred to as sub-funds or funds. 15

18 CHAPTER 1 In addition to a regression-type methodology, also applied by earlier studies, a survey was conducted among board members of the funds in the sample regarding their role in general and their influence on costs and performance. The approach with both the regression and survey methodologies is a powerful combination to achieve clearer and stronger results. 1.3 Historic development of investment funds This section describes some of the most important milestones in the development of the investment fund as a financial product, from the first investment fund that was launched in the eighteenth century in the Dutch Republic, to the modern, cross-border fund held by investors in multiple countries. 1774: First investment fund in history The history of the investment fund dates back to the second half of the eighteenth century. The development and launch of the first investment fund followed from the financial crisis that had started in England and then hit the Dutch financial market in 1772 and In this context, the Amsterdam broker, Abraham van Ketwich, launched a fund in 1774 in the Dutch Republic under the name Negotiatie onder de Zinspreuk Eendragt maakt Magt (Fund under the Motto Unity is Strength 6 ). Risk reduction through diversification for smaller investors was one of the fund s main objectives. Interestingly, the diversification rules were laid down in the offering document by specifying ten different categories of bonds across which the investments had to be spread. Those categories included bonds from Austria, Denmark, German kingdoms, Spain, Sweden, Russia and plantations in Latin America and the West Indies (Berghuis, 1967, p ). Because the fund did not invest in equity or domestic bonds, it can be characterised as an international bond fund avant la lettre. The fund had a closed-ended structure, but the shares were traded on the Amsterdam stock exchange to provide liquidity. The fund was set up for a period of 25 years, after which the portfolio would be liquidated and the proceeds would be distributed to the participants, unless the participants were to decide to continue the fund. Different from modern investment funds, one of the product characteristics of Eendragt maakt Magt was a complicated lottery element, which at the time was common for securities. Each year, participations were drawn that were repaid at par plus a premium of 10% (Berghuis, 1967, p ). What may well be the first advertisement in history for an investment fund is shown as figure In the section Bekentmaakingen (Announcements) of the Gron- 6 Eendragt maakt magt was also the motto of the Dutch Republic ( ); in its coat of arms, usually shown in its Latin form Concordia res parvae crescunt. That was also the name of the second fund launched by Abraham van Ketwich in Literally, Concordia res parvae crescunt means Unity makes small things grow. 7 This was the first reference to the fund that was found in any of the Dutch newspapers that are available via the website of the National library of the Netherlands ( Koninklijke Bibliotheek ). It cannot be ruled out that there were similar announcements for the same fund slightly earlier, in Dutch newspapers not available through this source. 16

19 INTRODUCTION AND BACKGROUND inger Courant of 6 September 1774, it is announced that investors can subscribe for the fund Eendragt maakt Magt during that month. The text mentions that a plea regarding its absolute certainty and interesting advantages can be obtained from Abraham van Ketwich in Amsterdam and from representatives of the fund in several other Dutch cities. Figure 1.2: Newspaper announcement with regard to Eendragt maakt Magt Translation from Dutch: In the FUND under the Motto UNITY IS STRENGTH, established in Amsterdam, can in this running month be participated for 527 guilders 10 stuivers per share, including the interest since July 1 st ; the contribution shall be increased in the Month September by 2 guilders and 10 stuivers per share. The receipts Nr. 1 to 500 can be exchanged now against the Original shares and Coupons and the shares of Nr. 500 to 1000 will be ready in 2 to 3 weeks; this Fund, which is already far advanced, will extend itself to the sum of ONE MILLION GUILDERS and not more; the NOTICE as well as a PLEA REGARDING ITS ABSOLUTE CERTAINTY AND INTERESTING ADVANTAGES can be obtained from ABRAHAM van KETWICH Broker in Amsterdam, as well as at the offices of the gentlemen A.J. HESHUYSEN and Comp. in HAARLEM, A. and S. BOAS and J. HUYGENS in The Hague, A.A. VERMEULEN, ROTTERDAM, WILLEM VAN VLOTEN and D.W. van VLOTEN in UTRECHT as well as from the Bookseller L. HUISINGH in GRONINGEN and further in local cities from Brokers in Bonds. Source: Groninger Courant, 6 September 1774, available via An aspect worth noting in the context of fund governance is that Van Ketwich seemed to be aware already of potential conflicts of interest in the fund s management and operations. On the basis of the offering document, the daily management of the portfolio was entrusted to the two directors ( commissarissen ). They could make investment decisions, but only within narrow limits, which were specified in the offering document as well. Van Ketwich looked after the administrative aspects of the fund. Berghuis (1967, p. 54) writes about the fund: Active management was only reserved for the two directors. Abraham van Ketwich was entrusted with a more passive role. He was accountable to the directors on an annual basis with regard to the administration. Through this separation of management powers, it at least appeared that the conflict of interest between the founder-director of the fund and the collective of participants was avoided. Churning of the portfolio could be profitable for Abraham van Ketwich from the viewpoint of generating commissions. Since he had no influence on this, the investment fund could not be misused as a cash cow. 8 The offering document also described the arrangement that was in place to ensure that the investments of the fund were safe. This depositary function consisted of an iron chest with three different locks, in which the portfolio of securities would be kept. The keys were in the possession of the two directors and the notary (see figure 1.3). 8 Translation from the original text in Dutch. 17

20 CHAPTER 1 Figure 1.3: Article X from the offering document of Eendragt maakt Magt (1774) Translation from Dutch: Article X. The original deed of this fund, of which the below imprimatur is signed by the gentlemen directors and the administrator, will be deposited among the minutes of the notary Mr. Paulus Huntum and all shares issued will be logged on the original deed so that those interested can be ensured that the shares issued will never exceed the capital of securities (invested in) belonging to this fund. The securities will be kept at the office of the administrator (of the fund) in a sufficient iron chest with three different locks, of which a key will be held by each of the directors and the notary mentioned. In the same chest, also respectively the repaid and redeemed shares (in the fund) as well as withdrawn coupons will be placed. Source: Amsterdam City Archives, Archive of Notaries residing in Amsterdam (access code 5075), Archive of Mr. Paulus Huntum (inventory number 14163). The management fee of the fund is estimated at 0.2% of the assets per annum, which consisted of a commission of 0.5% at the launch of the fund plus 100 guilders per annum for each of the 20 classes of participations (Rouwenhorst, 2005, p. 257) 9. The 838,550 guilders that Van Ketwich raised with this first fund in history was only a relatively small amount compared to the estimated 1.5 billion guilders that Dutch investors had invested abroad at the time, hence the fund was of limited commercial success (Berghuis, 1967, p. 65). The investment results were disappointing as well. In the first few years, the results of the fund were satisfactory, but starting from 1782, the Fourth Anglo-Dutch War ( ) had an adverse influence on the fund, especially on the fund s investments in colonial bonds. As of 1782, Van Ketwich had to suspend the annual redemptions. After the war, the situation did not improve due to continued turmoil in Europe. By 1799, when the fund reached its planned maturity date, it was decided to continue, in an attempt to recover losses and hoping that the participations could be repaid at par on a later date. Finally, the fund was liquidated in 1824 (Berghuis, 1967, p ). 9 This is low compared to today s management fees: The asset-weighted average management fee (including transparent distribution fees) of retail shares of global bond funds domiciled in Luxembourg is 0.77% (source: Lipper Luxembourg Funds Encyclopaedia 2009). 18

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