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Under Ind AS 110, a fund manager has 10% pro-rata investment, receives a 1% market-based fee, and investors have NO substantive rights to remove the manager. Under the principal-agent framework:
AWithout substantive removal rights, the manager is automatically principal
B10% is above the 5% threshold for principal status — manager controls the fund
CThe 10% exposure + market-based fee is NOT of such significance that the manager is principal — combined with the narrow decision-making parameters, manager is an AGENT (no control)
DManager controls — investors' lack of rights creates de-facto control
Answer & Solution
Correct answer: C. The 10% exposure + market-based fee is NOT of such significance that the manager is principal — combined with the narrow decision-making parameters, manager is an AGENT (no control)
Illustration 16 of the chapter — for a narrowly-mandated regulated fund with 10% pro-rata investment + market-based fees + no obligation beyond pro-rata: manager's exposure to variable returns is not of such significance, the decision-making is constrained by mandate, and investors' redemption rights cap manager autonomy. Manager is an AGENT. Note: there is no fixed % threshold; the determination is qualitative.
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