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Key uses and ways institutional investors can benefit from this process.
Q&A: 3 things you should know about unitization
Institutional investors continually look for ways to bring efficiency and accuracy to their investment portfolios. One way to do this can be through the use of unitization.
Here are three things you should know about unitization.
A: Unitization is the process of creating an unregistered ‘fund’ (similar to a mutual fund) for an investor allowing for easier support of sub-accounts — smaller, affiliated entities that are part of a larger, main pool of assets). Assets of the main investment pool are aggregated together and valued daily, striking a daily unit value (NAV) for the fund. Each sub-account then holds units of that larger fund.
A unitized fund acts like a mutual fund but is not legally registered; no prospectus, no board of directors, etc. It can only be used for assets that are part of the same pool.
A: By unitizing assets, multiple sub-accounts can aggregate their funds to create larger investments. One reason to unitize is for managed accounts with high minimums, with complex implementations, and/or for security screening, which is not easily applied to smaller asset pools. Aggregating assets allows for meeting higher required minimums, and is especially helpful when screening, as managers are able to screen on fewer accounts that have higher balances. Also, it is not efficient to implement complex mandates on small accounts.
Another reason to unitize is for alternatives. As the required paperwork for these investments is typically complex, it can be beneficial to have multiple affiliated investors aggregate their balances and complete one set of documents, as opposed to each individual investor completing a set of documents.
A: There are many benefits.
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This information is provided by SEI Investments Management Corporation (SIMC), a registered investment adviser and wholly owned subsidiary of SEI Investments Company (SEI). Investing involves risk including possible loss of principal. There can be no assurance that your investment objectives will be achieved nor that risk can be managed successfully. International investments may involve risk of capital loss from unfavorable fluctuation in currency values, from differences in generally accepted accounting principles or from economic or political instability in other nations. Emerging markets involve heightened risks related to the same factors as well as increased volatility and lower trading volume. Bonds and bond funds will decrease in value as interest rates rise. High yield bonds involve greater risks of default or downgrade and are more volatile than investment grade securities, due to the speculative nature of their investments.
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