There is a growing interest in securitizing 12b-1 fee receivables. This type of securitization pools the fee receivables from numerous funds and fund families in a segregated bankruptcy-remote trust. The trust then issues securities backed by such fees. In general, the volatility, the magnitude, and the timing of the cash flows from the fee collections determine the value and the risks associated with these securities. These risks are usually quantified using deterministic and probabilistic models such as a discounted cash flow approach, Monte Carlo simulation and ratio analyses.

Today, there are more than 8,000 mutual funds in existence in the US, of which about 6% has been involved in secuitization. More than 40% of the funds currently use the 12b-1 fee arrangement to cover at least part of their distribution-related expenses. B-share plans have enjoyed a tremendous growth in recent years.

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