Series Accounting

Under series accounting, investors subscribing in a given period, usually each month, receive shares of a new series issued at a fixed initial price. Each series tracks its own performance fee accrual and high-water mark, so investors bear fees only on their own gains without the investor-level adjustments of equalization.

To avoid an unmanageable number of series, funds usually roll up series at crystallization. Series that are at or above their high-water mark are converted into a lead series at the ratio of their NAVs; series still below their HWM stay separate until they recover.

Pitfalls include incorrect roll-up ratios, missed roll-ups, investor statements that confuse holders of multiple series, and complex reporting when many series remain below their high-water marks after a drawdown. Investor statements should show each series held, its NAV and its high-water mark so that investors can follow the mechanics.

Example

Series 1 (January) and Series 2 (April) are both issued at $1,000. By year-end, after a 20% fee crystallizes, Series 1 is at $1,080 and Series 2 at $1,032. Series 2 is above its HWM, so it rolls into Series 1: each Series 2 share converts into $1,032 ÷ $1,080 = 0.9556 Series 1 shares.