One portfolio, two prices: the order of operations that keeps each share class paying its own fees and the class NAVs tying to the fund.
Allocate the portfolio's result to each class in proportion to its opening NAV, not its share count, then deduct each class's own fees and divide by that class's shares. On an illustrative fund of 1,000 with an institutional and a retail class, a 0.90 per cent month takes class I from 102.50 to 103.303 and class S from 96.25 to 96.916: returns of 0.783 and 0.692 per cent from the same assets.
Worked in full in The Evergreen Fund Handbook by Julian R. Sterling, with every figure reproduced in a free workbook.See the book on Amazon →
Most semi-liquid private markets funds run several share classes over one portfolio: an institutional class with a low fee, a wealth class with a servicing fee for the distributor, sometimes currency-hedged classes. The classes own the same assets, so they share the same gains and losses, but they pay different costs. The NAV per share of each class is therefore a small piece of accounting that has to be done in the right order, every dealing period, because every subscription and redemption is priced on it.
| Input | Class I | Class S |
|---|---|---|
| Shares in issue | 6.0m | 4.0m |
| Opening NAV per share | 102.50 | 96.25 |
| Opening class NAV | 615.0 | 385.0 |
| Management fee | 1.00% | 1.25% |
| Servicing fee | 0% | 0.85% |
| Fund-level expenses, shared | 0.40% | 0.40% |
| Portfolio return for the month, before costs | 0.90% | |
The two classes started at the same price. Class S is lower now because it has paid more in fees since launch. That history is why share count and NAV are no longer in the same proportion: class I is 60.0 per cent of the shares but 61.5 per cent of the NAV.
Class share of portfolio result = portfolio result × class NAV ÷ total NAV
Portfolio result: 0.90% × 1,000.0 = 9.00.
Class I: 9.00 × 615.0 ÷ 1,000.0 = 5.535. Class S: 9.00 × 385.0 ÷ 1,000.0 = 3.465.
Fund-level expenses at 0.40% a year, the same way: 0.205 to I and 0.128 to S, 0.333 in total.
Class cost = annual rate ÷ 12 × opening class NAV
Class I management fee: 1.00% ÷ 12 × 615.0 = 0.513.
Class S management fee: 1.25% ÷ 12 × 385.0 = 0.401. Servicing fee: 0.85% ÷ 12 × 385.0 = 0.273.
| Line | Class I | Class S | Fund |
|---|---|---|---|
| Opening NAV | 615.0 | 385.0 | 1,000.0 |
| Share of portfolio result | 5.535 | 3.465 | 9.00 |
| Fund-level expenses | −0.205 | −0.128 | −0.333 |
| Management fee | −0.513 | −0.401 | |
| Servicing fee | 0 | −0.273 | |
| Closing NAV | 619.817 | 387.663 | 1,007.480 |
| Shares | 6.0m | 4.0m | 10.0m |
| NAV per share | 103.303 | 96.916 | |
| Return for the month | 0.783% | 0.692% | 0.748% |
The gap between the classes is 9.2 basis points for the month, which is the extra 1.10 per cent a year of class S fees divided by twelve. It is the same 9.2 basis points whether the portfolio gains or loses, because the class costs are charged on NAV, not on performance. Compounded over twelve such months, class I returns 9.82 per cent and class S 8.62: a gap of 119 basis points, slightly more than the 1.10 of fees because each month's 9.2 basis point gap is itself compounded by the year's return.
Two shortcuts are common in spreadsheets built before a fund had a second class.
| Method | Class I NAV per share | Class S NAV per share | Effect |
|---|---|---|---|
| Allocate on opening NAV (correct) | 103.303 | 96.916 | Ties to the fund NAV |
| Allocate on share count | 103.280 | 96.949 | 0.135 moved from I to S |
| One blended price for all | 100.75 | 100.75 | Fees no longer reach the right holders |
Allocating by shares gives class S 40.0 per cent of the result when it owns 38.5 per cent of the assets: 0.135 of class I's gain goes to class S holders in a single month, and the error grows as the classes drift further apart. The blended price is worse, because dealing happens at it. A subscription of 20 into class I at 100.75 buys 0.1985m shares that are really worth 20.51 at the class I price, a transfer of 0.51 from existing class I holders. The same 20 into class S buys shares worth 19.24: the new investor loses 0.76. Priced correctly at 96.916, it receives 0.2064m shares.
Performance fees and hedging make the order matter more. A class-level performance fee is computed on each class's return after its own fees, against its own high-water mark. A currency-hedged class adds a hedge result that belongs to that class alone. Both go in step 2, after the common result is shared.
The common mistake is weighting by share count because it is the number the register holds. It works only on launch day, when every class has the same price. From the first fee accrual onward, the weights must be the opening class NAVs, and the check is that the class NAVs add up to the fund NAV to the cent, every period.
Share the portfolio result and the common expenses on opening class NAV, charge each class its own fees, then divide by its own shares. The class gap should equal the fee difference each period; if it does not, the allocation is wrong. The book's own share class comparison, 8.64 against 7.55 per cent net on the same portfolio, is computed in the free workbook for this book. For how far the fee stack reaches into a wealth investor's return, see how much of a semi-liquid fund's return the fees take.
Because share count and NAV diverge as soon as classes pay different fees. In the worked case class I holds 60.0 per cent of the shares but 61.5 per cent of the NAV, so allocating a 9.00 monthly result by shares moves 0.135 from class I to class S in one month.
Each period it equals the difference in class-level fees. With class S paying 1.10 per cent a year more, the gap is 9.2 basis points a month in every market. Over twelve months at 0.90 per cent it compounds to 119 basis points: 9.82 per cent against 8.62.
Value moves between investors. In the illustrative case a blended price of 100.75 lets a subscriber of 20 into class I receive shares worth 20.51, taken from existing holders, while the same 20 into class S buys shares worth only 19.24.
This article is one calculation from The Evergreen Fund Handbook. The book takes the same case from first principles to the decision, chapter by chapter, and every figure it prints is a live formula in the free companion workbooks.
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