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CLOSED-END 40 ACT FUNDS

PRIVATE EQUITY

MISALIGNMENT PROBLEM

Closed-end funds registered under the Investment Company Act of 1940 may provide a performance or incentive fee to it managers, provided that all investors are "qualified clients." An investor is a qualified client if it has a net worth of at least $2 million and at least $1 million invested with the advisor or manager.

An increasing number of funds are providing incentive fees. The current model, however, suffers not only from the annual crystallization problem (see Alignment Alpha®), but fails to provide each investor with its appropriate share of the profits realized on such investor’s investments. Instead, investors receive asymmetrical results depending on when they buy and sell shares. Managers reap incentive fees after the performance period for which they are assessed—typically 36 months. So a new investor may be paying a higher fee because of strong performance that occurred before the investment or may be getting a bargain on the fee because of lagging performance suffered by earlier investors.

FAR® Funds not only generate Alignment Alpha®, but ensures symmetrical results for each investors. Each investor receives its appropriate share of the profits realized with respect to the life of each investment.

Model Your Own Results. If you are an investor in a closed-end 40 Act fund that provides a performance fee, or a manager, Contact Us to receive a comparison of results under such fund and a FAR® Fund.