April 2025 Q3 part iv

[Pallav]

I did not understand the below points made in the examiner solution.

"It is possible that the shareholder has come to an agreement that the NPF will charge the WPF 0.9% and all charges associated with UWP B will be charged to the NPF, thus the charges to asset shares equal the charges incurred by the WPF. But the fund is 90:10, so if the WPF is charged the underlying costs together with the shareholder transfers, then there will be a mismatch between costs and charges."

It seems they are discussing a mismatch of expenses and charges but it's not clear to me. They talk about asset shares of UWP B product in the WPF, the WPF itself and the NPF. Can you please explain what's being charged to whom and where we are referring to charges and expenses/costs?

 

[Lindsay Smitherman]

This part of the solution is effectively referring to the discrepancy between charging a fixed 0.9% pa deduction to the asset shares (irrespective of what actual expenses are) and the fact that this is a 90:10 fund, under which actual expenses should be shared in a 90:10 ratio between WP p/hs and shareholders. If you look at the solution we have produced in our ASET product for this exam paper (rather than the Examiners' Report version), you will see that we have worded this idea in a little more detail and you should find it easier to follow there.