Temporary New Account

Temporary new account is a holding place that is set up within a fund to hold a balance as a result of a significant cash inflow or outflow to the fund. The account is set up to hold these funds temporarily until they can be distributed to unit holders, used to acquire additional assets for the fund, or for other large fund expenditures.

Temporary new accounts are set up by funds in order to help streamline and simplify the accounting and cash flow process. This process is recommended by Global Investment Performance Standards (GIPS), a set of voluntary best practices developed by the CFA Institute that is designed to give investors additional transparency to evaluate investment managers. By setting up separate accounts, a fund can easily determine the amount of money that is going to be distributed to unit holders, or roughly the amount of money it will use to purchase additional holdings for the fund.

Large amounts of cash inflow or outflow at one time can be disruptive to the maintenance of a composite, which is defined by GIPS as an aggregation of one or more portfolios managed according to a particular investment mandate, objective or strategy. Fee-paying, discretionary portfolios are included in composites, while non-discretionary ones are not. An anticipated significant inflow or outflow would call for the establishment of a temporary new account, in accordance with GIPS guidance, to minimize the impact to the composite that an investment manager would like to keep stable. The thresholds for such cash flows that require the set up of temporary new accounts should be determined before a composite is constructed and communicated to clients.