A Primer on Securities - Part II

Author: Fatima Castiglione Maldonado, Director of https:/Ethernity.live

Units

Case B in securities (investor of an investment fund) is what is known as the issuance of shares of an investment fund.

The investment fund is a particular case of a company, because it does not invest in fixed assets or general intangibles, nor does it provide general services. This type of company is solely dedicated to buying securities (stocks and bonds issued by other institutions). The shares of an investment fund pay dividends just like other companies, but these dividends arise from the gain that the fund obtains when investing in securities (stocks and bonds issued by other institutions).

An investment fund is a financial intermediary, which can offer certain advantages for individual or institutional investors, to begin with, having its own infrastructure (lawyers, accountants, fund managers).

Example:

1. investors contribute 1,000,000 dollars
2. the fund invests that 1,000,000 in securities (stocks and bonds issued by other institutions)
3. in a given period, the fund gets 50,000 dollars of profit
4. the fund distributes $ 45,000 among investors as a dividend
5. the fund keeps $ 5,000 as a commission (ie 10% of the dividend)
6. shareholders still own securities worth 1,000,000 dollars

When investing in an investment fund, shares of the company that manages the fund are not purchased (there is no ownership of the fund itself as a company) but ownership of the securities that are managed by the fund is accessed.

The investment fund obtains its profits by charging a commission on the profits obtained, and this commission is known in the financial field as "carried interest".

The “carried interest”:

• it is a commission on the profits obtained by an investment fund when investing the money of the investors
• it is a% of said profit obtained by the fund, in the case said profit exists in a certain period
• the investment fund pays this commission to itself after paying dividends to investors

Case B (issuance of shares of an investment fund) covers the following data:

Investment fund data:

• fund name
• registry number
• this datum is entered by the issuer of the token if there is tokenization
• the jurisdiction in which it operates
• this datum is entered by the issuer of the token

token issued as an action, with its own data:

• token name and token address
• number of tokens issued (example: 100,000 tokens)
• % share in the total capital represented by the tokens (example: 100,000 tokens can represent 100% of the share package or 50% of the share package) (source: input)
• in this case (so far) there is usually no right to vote, although they begin to emerge, investment funds managed by a DAO (Distributed Autonomous Organization, I will talk about this in another article)

data of dividend payments to be executed:

• dividend payment schedule (monthly, quarterly, annual)
• monetary result of the period to be paid (this must arrive by oracle since it is dependent on the business result and cannot be calculated on the blockchain)
• % of carried interest (of the commission charged by the fund on earnings) (source: input)
• payment to be made to each token holder (based on pro-rata calculation) where the calculation is made as follows:
• total capital by the rate of return for the period, according to examples:
• $1,000,000 for 10% per year = 100,000 dollars
• $1,000,000 for 7% per year   = 70,000 dollars
• $1,000,000 for 5% per year   = 50,000 dollars
• $1,000,000for 8% per year    = 80,000 dollars
• the dividend is prorated on the amount of tokens (example: if there are 1,000,000 tokens there are $ 0.10 for each token, that is, it is divided by the total amount of tokens issued, and then multiplied by the amount of tokens of each holder)
• Variable rate example: on an investment of $ 100,000, dividend settlements are received:
• total investment $ 1,000,000 / individual investment $ 100,000 = the participation rate is 10%
• month 01, rate 10% => $ 100,000 => $ 100,000 / 10 = $ 10,000
• month 02, rate 7% => $ 70,000 => $ 70,000 / 10 = $ 7,000
• month 03, rate 5% => $ 50,000 => $ 50,000 / 10 = $ 5,000
• ...
• month 10, rate 8% => $ 80,000 => $ 80,000 / 10 = $ 8,000
• payment to be made to the fund (origin: pro rata calculation)
• Total capital by rate of return for the period according to example:
• $ 1,000,000 for 10% per year = $ 100,000
• $ 1,000,000 for 7% per year = $ 70,000
• $ 1,000,000 for 5% per year = $ 50,000
• $ 1,000,000 for 8% per year = $ 80,000
• the commission rate is 10%
• month 01, 10% performance rate => $ 100,000 => $ 100,000 / 10 = $ 10,000
• month 02, 7% yield rate => $ 70,000 => $ 70,000 / 10 = $ 7,000
• month 03, 5% performance rate => $ 50,000 => $ 50,000 / 10 = $ 5,000
• ...
• month 10, 8% performance rate => $ 80,000 => $ 80,000 / 10 = $ 8,000