Enhancing efficiency by merging funds

The German Investment Modernisation Act of 2004 created the basis for the amalgamation of special funds.

During a fund amalgamation, the acquiring fund assumes all the asset and liabilities of the transferring fund on a specific date at amortised cost. This means that unrecognised profits or losses from the individual items of the transferring fund are also transferred. Universal-Investment has supervised numerous fund amalgamations, calculated the most favourable target combination in line with regulatory and tax provisions and in this way achieved significant efficiency improvements for client investments.

These are possible through setting up one or several main funds focusing on different asset classes (via segment funds) and thus lowering the future depreciation risk by merging funds with financial instruments of differing performance trends or reducing the bookkeeping entries in the investor’s accounts.

When funds are amalgamated, units of the transferring fund are considered as sold at book value and the units of the acquiring fund that replace them as acquired at this value. This means the unrealised gains and losses of the fund units do not need to be disclosed, as the original book values of the transferring fund can be taken over and carried forward as such into the investor's accounts.

If the KAG administers both the transferring and the acquiring special fund, a merger may take place at the end of the transferring special fund’s financial year. If the special fund investor does not wish to wait this long, the transferring fund may also opt for a short financial year.