What is Commingling (Commingled)

Commingling (commingled), in securities, is the combining of assets or customer-owned securities in a single investment vehicle.

BREAKING DOWN Commingling (Commingled)

Commingling combines assets contributed by investors into a single fund or investment vehicle. Commingling is a primary feature of most investment funds. It may also be used to combine various types of contributions for various purposes. Below are some examples of investment commingling.

1. If you deposit a paycheck into an inheritance fund, the paycheck would not be considered separate funds but part of the inheritance fund. Thus, the paycheck is no longer considered separate property from the inheritance.

2. In investment management, it is the pooling of individual customer contributions into a single fund, a portion of which is owned by each contributing customer. Commingled funds are managed to a specified objective. A commingled fund structure is used for mutual funds. It is also used to manage institutional investment funds.

Benefits of Commingling

Commingling investors contributions into a single fund is a structure that has been used in investment management since the first mutual funds were launched. Commingling allows a portfolio manager to comprehensively manage the investment contributions into the portfolio to a specific strategy. Using pooled funds allows fund managers to keep trading costs down since trades can be executed in larger blocks. The commingling of investor contributions does require fund managers to maintain certain positions in cash in order to account for the transactions of the commingled shareholders.

Mutual funds and institutional commingled funds are two of the most popular commingled funds in the investment market. Any vehicle that commingles investor contributions for a specified investment goal can be considered a commingled fund. Other types of commingled funds include exchange-traded funds, commingled trust funds, collective investment trusts and real estate investment trusts.

Standard record keeping allows operational teams to monitor and regularly report fund positions to investors. For mutual fund investors, daily price quotes allow an investor to know their exact position in a mutual fund as a percentage of the fund’s total managed assets.  

Illegal Commingling

In some cases, the commingling of funds may be illegal. Details of an asset management agreement are typically outlined in an investment management contract. An investment manager has a fiduciary responsibility to manage assets according to certain specifications and standards. Assets agreed to be managed as separate cannot be commingled by the investment advisor.

Other situations may also arise where contributions provided by an individual or client must be managed with special care. This can occur in legal cases, corporate client accounts and real estate transactions.