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    Swing Pricing

    Protecting the interest of existing investors in a fund

    Sections

    What is Swing Pricing and what is it designed to do?
    How does GSAM apply Swing Pricing?
    Are the Swing Factor and Swing Threshold disclosed to investors?
    How can Swing Pricing impact the performance of a fund?
    How can I get more information on this topic?
     

     

    What is Swing Pricing and what is it designed to do?
     

    Buying and selling securities in a fund generates trading costs such as brokerage fees, taxes and more. These costs can negatively impact the fund’s performance. Swing Pricing is a mechanism that transfers an estimate of the trading costs generated to investors who are subscribing into and redeeming out of a fund.


    How does GSAM apply Swing Pricing? 
     

    If net flows exceed a pre-determined level (known as the ‘Swing Threshold’), an adjustment (known as the ‘Swing Factor’) which is a percentage estimate of the trading costs is applied to the NAV per share. Please see the examples below for more information.

    Examples – Effect of Swing Pricing on NAV

    For the purpose of the examples we will assume the following:
     

    1. Swing Factor 0.25%
    2. NAV per share $100
    3. Fund’s total assets under management (AUM) $100m
    4. Swing Threshold (as a percentage of AUM) 3%

     

     

    Example 1: No swing

     

     

    Subscriptions $6m
    Redemptions $4m
    Net flows $2m

     

    The net flow of $2m does not exceed the Swing Threshold of $3m; therefore no swing adjustment is applied.


    NAV per share: $100

    Example 2: NAV Swung Up (Net Inflows)

     

    Subscriptions $10m
    Redemptions $3m
    Net flows $7m

     

    The net flow of $7m exceeds the Swing Threshold of $3m; therefore an up-swing adjustment is applied.

     

    NAV per share: $100.25
     

    Example 3: NAV Swung Down (Net Outflows)

     

    Subscriptions $8m
    Redemptions $12m
    Net flows: -$4m

     

    The net flow of - $4m exceeds the Swing Threshold of -$3m; therefore a down-swing adjustment is applied.

     

    NAV per share: $99.75


    Are the Swing Factor and Swing Threshold disclosed to investors?
     

    The Swing Threshold will not be disclosed to investors as disclosing this may encourage subscriptions or redemptions below the swing threshold level which is not in the interest of long term investors.

    In cases where an investor has subscribed or redeemed on a particular day, GSAM can advise if the fund swung or not and can disclose both the direction of swing and the current Swing Factor upon request from the investor.

    Additionally, historical Swing Factors can be made available upon request. GSAM also publishes the prior month’s Swing Factor in the Monthly Fund Update of the relevant fund.


    How can Swing Pricing impact the performance of a fund?
     

    The below diagram illustrate how Swing Pricing may introduce some volatility to a fund’s performance due to the use of estimated rather than actual trading costs.

    Assuming a fund’s performance is identical to the benchmark performance at the onset and the Swing Factor is 1%. (Note: NAV per share rounded to 2 decimal places).

    Swing-Pricing

    For illustrative purposes only


    In the above example, if the actual as opposed to estimated trading costs were applied, the fund’s performance would mirror that of the benchmark.


    How can I get more information on this topic?

     

    For more information on Swing Pricing please reach out to your local Sales representative.

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