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What to Make of Bridgeway's Run-In with Regulators

Shop settles with the SEC, but we still hold it in high esteem.

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While there's no doubt Bridgeway Capital Management erred, we still think it's one of the most trustworthy fund companies around.

The small fund shop yesterday reached a settlement with the Securities and Exchange Commission. The SEC charged Bridgeway with overcharging its investors in three funds,  Bridgeway Aggressive Investors 1 (BRAGX),  Bridgeway Aggressive Investors 2 (BRAIX), and  Bridgeway Micro-Cap Limited (BRMCX), due to the advisor's mistaken computation of performance-based fees for those funds.

Here's what happened: The fees charged on the three funds consist of two components--a fixed management fee and a variable performance-based fee. The performance-based fee fluctuates based on how each fund performs versus a relevant benchmark over a specified rolling period (five years in the case of Bridgeway Aggressive Investors 1 and Bridgeway Micro-Cap Limited, and since its October 2001 inception for Bridgeway Aggressive Investors 2). If a given fund's returns exceed the benchmark's over the rolling period specified, the performance-based percentage increases. Conversely, if the fund's returns fall shy of the index's, the performance-based percentage is negative, thereby reducing the overall fee levied.

Bridget B. Hughes does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.