Parent to Child Convertible Relationship

Conversions are typically a characteristic of a B share. However, not all B share funds convert to another class. Therefore PACE does not assume that all B share funds are subject to conversion. Similarly PACE is also able to support classes other than B that might converts to some other class. As such, PACE requires that convertible relationships be established in advance, to make sure the system knows which funds are subject to convertible processing. This is accomplished by assigning the "convert to" fund entity ID onto the entity record of the "convert from" fund.

To review; every share class of a mutual fund has a unique ENTITY_ID in the RULESDBO.ENTITY table. One of these attributes is reserved to specify the entity id of the share class of the "convert to" fund. This means that any fund can be set up to convert into any other fund.

For example assume "Fund 1 - Class B" (entity id = FUND1B) converts into "Fund 1 - Class A" (entity id = FUND1A) after 5 years.

The baseline entity record would appear as shown in the following table.

PACE also provides a companion table (RULESDBO.ENTITY_EXTENSION_HIST) that has a dedicated column (MFP_CONV_PARENT_ID) for maintaining the convertible relationship. If FUND1B converts into FUND1A, the database entry would appear as shown in the following table.

Note that the record for entity id FUND1B has the column MFP_CONV_PARENT_ID set to FUND1A. This means that when PACE is calculating a convertible return, it uses the fund accounting data of FUND1B from the start date of the return period up to the calculated conversion date. It then converts over to use the data for FUND1A from conversion date up through the end date of the performance period.

MFP_Conv_Parent_ID is an optional field that only needs to be populated if a fund is subject to being converted. If used, it MUST be populated with the ENTITY_ID of the share class to which the starting fund converts. Although in practice, conversions are always within a single product (and typically B to A share), PACE was designed to support convertible relationships between any two entity id's in PACE. In addition, the calculation also supports nested conversions (for example where B converts to A, and A converts to D). PACE does not support nested conversions where a circular reference exists. For example: B converts to A, then A converts to D, and then D converts back to B.

Note: The two additional columns in the preceding table (MFP_CONV_FREQ & MFP_CONV_PERIOD) are not part of the convertible relationship set up, but are included in this example for illustrative purposes and later discussion.