What Is a Commingled Fund?

What Is a Commingled Fund?

Let me explain what a commingled fund is: it's a fund that pulls together a portfolio of assets from various accounts, blending them into one. I see these funds primarily as a way to cut down on the costs of handling each account on its own.

You should know that commingled funds, sometimes called institutional funds, are pooled funds not listed publicly or open to individual retail investors. Instead, they're used in closed retirement plans, pension funds, insurance policies, and other institutional setups.

Key Takeaways

Here's what you need to grasp: a commingled fund is where an investment manager gathers money from different investors and merges it into a single fund. Just like mutual funds, these are managed by portfolio managers investing in various securities. But unlike mutual funds, they're not under SEC regulation. They don't trade publicly and aren't for individual buyers. You'll find them in institutional accounts like pension funds, retirement plans, and insurance policies.

Understanding a Commingled Fund

Commingling means combining assets from different investors into one fund or vehicle. It's a core aspect of most investment funds, and it can also mix various contribution types for different purposes.

In some respects, commingled funds resemble mutual funds. Both are handled by professional fund managers and invest in stocks, bonds, or mixes of them. They also gain from economies of scale, lowering trading costs per dollar invested, and diversification that reduces risk.

But they differ too. There's no 12(b)-1 marketing fee, and administration fees are often lower since they're not marketed publicly and have different reporting needs.

Oversight

Commingled funds aren't regulated by the SEC, so they don't have to file extensive disclosures. Mutual funds, however, must register with the SEC and follow the Investment Company Act of 1940.

That said, they're not without oversight: the United States Office of the Comptroller of the Currency reviews them, along with state regulators.

While mutual funds provide a prospectus, commingled funds offer a Summary Plan Description (SPD). This SPD gives more details on objectives, strategy, and manager backgrounds, plus rights and obligations for participants. If you're in a plan with one, read the SPD carefully.

Fast Fact

To check how a commingled fund performs daily or quarterly, you'll probably need to contact your company's retirement plan information center for updates.

Advantages and Disadvantages of Commingled Funds

On the advantage side, less regulation means fewer legal and operating costs for commingled funds. Lower costs mean less drag on returns. If a commingled fund and a similar mutual fund have the same gross performance, the commingled one's net return would likely be higher due to lower expenses.

A disadvantage is that they lack ticker symbols and aren't publicly traded. This makes it hard for outsiders to track capital gains, dividends, and interest income. Mutual funds must make this information transparent.

Example of a Commingled Fund

Take the Fidelity Contrafund Commingled Pool, available to companies with qualified employee benefit plans. It has a portfolio manager and discloses info through quarterly reports, focusing on large-cap growth stocks in sectors like information technology, communication services, consumer discretionary, financials, and health care. Unlike mutual funds, it's not open to the public.

Its expense ratio is 0.43%. Since starting in 2014, it's returned 14.69% annualized, beating the S&P 500's 12.96%.

Special Considerations

Sometimes commingling funds is illegal, especially if an investment manager mixes client money with their own or the firm's, against contract terms. Investment management contracts outline this, and managers have a fiduciary duty to handle assets per standards. Separate assets can't be commingled.

Other situations, like legal cases, corporate accounts, or real estate, require special care in managing contributions.

What Types of Commingled Funds Are There?

You can find commingled funds in equity, fixed income, and alternative investments. Alternatives might include hedge funds, derivatives, and private equity.

Can Anyone Invest in a Commingled Fund?

Normally, no. They're for institutional investors. Individuals can't invest unless they're high-net-worth accredited investors.

Where Do I Get Information About a Commingled Fund?

Usually from your employer if your retirement plan uses them. You won't see info in public sources like newspapers since they're not traded publicly. Some companies provide quarterly and annual performance reviews.

The Bottom Line

A commingled fund pools money from institutional investors, managed by professionals without SEC regulation. It's generally not for the public, except through employer retirement plans. Administrative costs can be lower than mutual funds due to simpler reporting and no marketing needs.