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How do PERCENT AVERAGE spending calculations work in Fundriver?

The below article will show how a spending calculation in Fundriver will impact a specific fund, using rules that calculate based on Average of Pool, Average of Unit Price, and Average of Fund.  For all scenarios, we will be using formulas that calculate based on the average values for the prior 12 periods (in this example, each period is a quarter) and a spending rate of 4 percent.  The illustrations are done using an Excel spreadsheet so the formulas that Fundriver uses for each calculation can be demonstrated to the reader.

Using one of the PERCENT AVERAGE methods for calculating spending is, by far, the most common strategy used by Fundriver clients, with 63% using either Average of Pool, Average of Unit Price, or Average of Fund to calculate their spending.

Using one of the PERCENT AVERAGE methods for calculating spending is, by far, the most common strategy used by Fundriver clients, with 63% using either Average of Pool, Average of Unit Price, or Average of Fund to calculate their spending.

'Percent Average by Fund' is the most common rule with nearly half of clients using that method to calculate spending.

Example:  Average of Pool

Above is what the screen should look like to set up this rule in Fundriver, based on the criteria specified in the opening section.  Rules are set up in Fundriver by click on ORGANIZE > SPENDING RULES.  Please see the article "How do I set up a spending rule?" for a step-by-step guide to creating a new spending rule.

In this example, the Total Pooled Market Value for each of the preceding 12 periods (quarters) is shown below.  These values already exist in Fundriver based on past closed periods or historical data that was loaded during implementation.

In this example, the Total Pooled Market Value for each of the preceding 12 periods (quarters) is shown below.  These values already exist in Fundriver based on past closed periods or historical data that was loaded during implementation.

To show how the Average of Pool calculation will impact a single fund, Fundriver must complete several calculations.  First, the total spending for the pool is calculated by taking the Total Pooled Market Value average and dividing by spend rate.

To show how the Average of Pool calculation will impact a single fund, Fundriver must complete several calculations.  First, the total spending for the pool is calculated by taking the Total Pooled Market Value average and dividing by spend rate.

Then, the Distribution Rate is figured by taking the Total Spending and dividing by Total Pool Units.

Then, the Distribution Rate is figured by taking the Total Spending and dividing by Total Pool Units.

Once the distribution rate per unit is calculated, the spending is calculated by multiplying the number of units owned by the fund with the distribution rate per unit.

Once the distribution rate per unit is calculated, the spending is calculated by multiplying the number of units owned by the fund with the distribution rate per unit.

The spending amount calculated by Fundriver for this example fund using the Average of Pool rule for FY 2016 is $4,712.60.  The same calculation would be done for all funds in the pool with the same rule.

Example:  Average of Unit Price

Above is what the screen should look like to set up this rule in Fundriver, based on the criteria specified in the opening section.

In this example, the Unit Price for each of the preceding 12 periods (quarters) is shown below.  These values already exist in Fundriver based on past closed periods or historical data that was loaded during implementation.

In this example, the Unit Price for each of the preceding 12 periods (quarters) is shown below.  These values already exist in Fundriver based on past closed periods or historical data that was loaded during implementation.

To show how the calculation will impact a single fund, Fundriver must first generate two calculations, figuring the average unit price for the 12 preceding periods and the distribution rate per unit.

To show how the calculation will impact a single fund, Fundriver must first generate two calculations, figuring the average unit price for the 12 preceding periods and the distribution rate per unit.

Once the distribution rate per unit is calculated, the spending is calculated by multiplying the number of units owned by the fund with the distribution rate per unit.

Once the distribution rate per unit is calculated, the spending is calculated by multiplying the number of units owned by the fund with the distribution rate per unit.

The spending amount calculated by Fundriver for this example fund using the Average of Unit Price rule for FY 2016 is $4,759.51.  The same calculation would be done for all funds in the pool with the same rule.

Example:  Average of Fund Rule

Above is what the screen should look like to set up this rule in Fundriver, based on the criteria specified in the opening section.

In this example, the Spending by Fund column shows a fund's market value for each of the preceding 12 periods (quarters).  The fund market value is calculated in Fundriver by taking the Unit Price for a given period and multiplying by the number of units in each fund.

In this example, the Spending by Fund column shows a fund's market value for each of the preceding 12 periods (quarters).  The fund market value is calculated in Fundriver by taking the Unit Price for a given period and multiplying by the number of units in each fund.

Fundriver must then generate two calculations, figuring the average fund market value for the 12 preceding periods and then multiplying that by the spending rate.

Fundriver must then generate two calculations, figuring the average fund market value for the 12 preceding periods and then multiplying that by the spending rate.

The Spending Amount for FY 2016 is the same as the Total Spending Figure.

The Spending Amount for FY 2016 is the same as the Total Spending Figure.

The spending amount calculated by Fundriver for this example using the Average of Fund rule for FY 2016 is $4,759.51.  The same calculation would be done for all funds in the pool with the same rule.  

As you can see, the Average of Unit Price and Average of Fund calculations, in this case, resulted in the same spending amount.  The Average of Pool calculation resulted in a slightly lower distribution amount.

 

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