I think I want to hear BigT1's opinion on this one.
Overall, this doesn't make sense to me. If you and I are the only two members of a pool (and each have 50 shares that we bought for the same price at the same time), then I withdraw 25 shares, the value of the pool will fall by 25%, but the share price should remain unchanged, since the total number of outstanding shares also fell by 25%.
Pharaoh,
DeltaFins aside for the moment pending research, as bad as it looks, and in answer to your question:
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There are different types of public funds:
1 - Open-end funds (Mutual funds)
2 - Closed-end funds
3 - PAMM (Mamm) Accounts
1 - A legitimate, registered Mutual Fund issues 'New Shares' as new money comes in, at the NAV (Net Asset Value) on the close of business the day the shares are purchased.
Therefore, a $1,000,000 mutual fund with 100,000 shares outstanding will have an NAV that day valued at $10.00/share.
The deposit of a fresh $100K will buy 10,000 new shares a $10/share.
The fund will now have $1.1M in assets underlying 110K shares, still priced at $10/share.
If the next day the old investors all sell out with the NAV at close of business still at $10/share, they will receive $1M.
The fund will have shrunk by 90% to $100K in assets with 10,000 shares left outstanding (your shares; congratulations, you now own 100% of the fund).
For the sake of discussion: excluding tax consequences and the costs of the transactions to purchase and liquidate the internal investments, the purchase and sale of shares by any investor will have only indirect influence on the remaining investors with limited effect on the NAV.
NAV * Your Shares = Your Assets in the fund, for all investors, at all times.
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2 - Closed-End Funds consist of a basket of underlying instruments that each have a market value.
The sum of the individual values of the underlying shares is divided by the fixed number of shares the fund has issued at inception to determine the NAV.
So, lets say a closed-end fund was established to represents the Dow Jones Industrials 30 stocks.
Lets say the fund issued 1,000,000 closed-end fund shares at $10/share on the day of inception, many years ago.
The initial investment of $10M in the fund was achieved.
The fund is then "closed to new investment".
The fund uses the proceeds of the offering to immediately purchase an equal# of shares of each of the 30 stocks in the DJI at that time.
Note: The DJI is a price weighted index; this would differ for a market cap weighted index fund.
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So at inception, the Closed-End Fund now houses a fixed numbers of shares of 30 different DJI stocks, the total value of which is $10M.
They are sent off to a nunnery to live forever, collecting dividends, splits, buy-backs, deaths, and replacements.
The value of the public shares issued by the fund at that moment is equal to the total of the market value of these underlying shares.
So the initial NAV = the intrinsic value of the stocks it contains.
Later, a buyer wants to participate in the DJI with limited funds, so instead of buying fractional shares in 30 individual stocks, she buys one share of the closed-end fund.
Very efficient.
Later, war breaks out; so the values of the 30 DJI stocks rises in anticipation of government deficit spending.
New investors clamoring to participate, bid up the price of the closed-end fund because they really want participation, but lack the funds to buy 30 stocks individually.
The NAV goes to a premium to the intrinsic value of the underlying shares.
In an alternative universe, an asteroid splits in two and hits Detroit and LA simultaneously. Major damage has occurred to the facilities of some of the DJI component companys.
The closed-end fund sells at a discount to the NAV, even in a falling market.
Investors in the fund can neither create new shares by investment, nor redeem shares to the fund. The shares exist in perpetuaity, and are priced solely by market forces.
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3 - PAMM Accounts, etc.
Defined as a "Percent Asset Management Module", each participant owns a percentage of the Master Account, aggregated from multiple participants for simplicity and efficiency in trading and investment. The investment manager must juggle the investments, plus handle the inflows and outflows to and from the account much as does a Mutual Fund Manager.
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In such an account your initial investment dollars are divided by the total dollar value of the PAMM Account at the time of your investment.
Say you invest $10,000 in an PAMM that is currently valued at $1M. Effectively, you own 1% of the account.
Tomorrow the account grows to $2M, so your 1% grows to $20K.
The next day a new investor adds $8M to the account.
With the PAMM now worth $10M, your % has dropped to 20K/10M or 0.2% from 1%, but is still worth $20K.
Next week the fund grows to $40M; your 0.2% is now worth $80K, so far an 800% gain. Big shot's investment went from $8M to $32M for a 400% gain.
Big shot now withdraws $32M, abandoning the fund with all his gains and capital investment.
The fund drops from $40M to $8M, but your investment is still worth $80K, so your ownership has just risen back to 1% from 0.2%, as a result of big shot's withdrawal.
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Even though you have been surrounded by deposits and withdrawals of all sizes, the value of your investment should always be based on the %Gains and Losses within the PAMM itself from the time of your investment, and nothing else. Technically, your percentage of ownership is constantly fluctuating based on yours, and all other participatants deposits and withdrawals.
The difficulty with PAMMs (and to a lesser degree Mutual Fund performance) is that when a manager is subjected to poorly timed requests for withdrawals by panicked investors, they can force undesirable, premature, unfortunate position closures, during critical drawdowns that erratically and disproportionately effect those who stay or leave, without definition or merit.
That is why a true CTA product has prescribed rules limiting withdrawals to certain dates, and with advance notice. This provides the CTA managers sufficient time to plan and liquidate assets if necessary, without being forced to meet sudden demands in one or two trading days, due to adverse market action; as often occurrs with PAMM arrangements.
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Anthony Ingrassia, CTA
NFA ID#: 0278164
Update:
11/21/2012
Having examined the website, their seems to be many warning signs:
1 - There is no physical address or telephone shown
2 - There is no discussion of fees charged for managing the funds
3 - There is no claim of regulation
4 - There is no discussion of how they issue shares or how the share value is calculated
5 - You are asked to sign and return a blank LPOA - like signing a blank check
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Their withdrawal form indicated a physical address:
DELTAFINS INVESTMENTS INC.
7 Rue Du Marché
1204 Geneva
Switzerland
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My search of FINMA comes up blank.
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Here is their website contact info:
Administrative Contact:
HostGator
Adam Farrar (support@hostgator.com)
Phone: +1.7135745287
Fax: +1.2814767800
11251 Northwest Fwy suite 400
Houston, TX 77092
US
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This is a confusing situation because an individually owned account with an independent broker would never have shares or any certificate associated with it.
Will need more info from Vic in order to assist.
When did you join?
With which broker did you place your funds?
Did you sign an LPOA?
What is the management fee arrangement?
Have you made withdrawals or deposits along the way?
Can you post or send your Detailed Statement?