As mentioned in our news story this morning, the Investment Management Association (IMA) is conducting the biggest review of its fund sectors in a decade.
The IMA surveyed its members on May 27 about how to house funds which use wider Ucits III or non-Ucits retail scheme (Nurs) powers to hold alternative assets, many of which are not covered by the funds’ current sector definitions.
The questions from the survey are included below and cover funds which hold derivatives, but are housed in conventional equity or bond sectors, or those which invest partly in property, commodities, private equity or hedge funds, but are included in the managed sectors.
The deadline for responses was June 25, and a members’ meeting is set to be held in September, but the IMA emphasises the consultation is long-term and ongoing
Readers can post their own responses to any of the questions below using the have your say comment box and are encouraged to give as many details about themselves as possible to enable the context for their responses to be understood.
Questions 4-8 are a request for information from fund providers, not views on how the sectors should develop. Readers may feel it is less appropriate to respond to these points, which are included for the sake of completeness.
As the sectors are key to the way the industry compares its own products, Fund Strategy will be aiming to collect as many detailed responses from readers as possible and better inform debate on the subject.
[Material has been inserted in square brackets to clarify wording where appropriate]
1. Should the IMA continue to accommodate both traditional funds which own physical assets in the same sectors with those that gain exposure by other means [such as derivatives]? Yes/No
2. If No, how should the classification scheme deal with other types of funds? Possible solutions are:
a. The creation of new sectors,
b. Flagging [of different fund types],
c. Parallel sectors,
d. A risk-based classification approach,
e. Request for greater transparency on holdings,
Please indicate your preference with reasons. If other, please specify proposed solution.
3. How would hybrid funds fit into this approach?
4. What are the primary reasons for launching non asset based funds?
5. What percentage of all your fund ranges sold in the UK are non-traditional in their strategy (traditional defined as long-only investment in physical assets)?
6. Please specify the number of UK/offshore (EU) domiciled funds which your firm has launched in the last three years?
7. Of the funds launched in the last three years, how many were not asset based funds – please specify whether UK/offshore (EU)/ offshore non-EU (includes Jersey, Guernsey, Isle of Man)?
Please specify the characteristics/types of funds which were not asset based – some suggestions: derivatives asset allocation strategy, strategy based fund (please specify the benchmark), client solutions. If the fund used a hybrid strategy, please give a rough estimate of the typical percentage of the asset allocation devoted to investment in physical assets.
8. Of the funds launched in the last three years how many were targeted at the retail investor, institutional investor or high net worth individual (minimum investment > £50,000)? Please indicate the number for total/non asset based funds.
9. Where should multi-asset funds be classified? How should multi-asset be defined, for example, to distinguish from traditional managed funds?
The monitoring process presents some challenges, particularly since the introduction of widened investment powers in Ucits III legislation.
Increasingly, it is not sufficient to provide just portfolio holdings information to Lipper at month end but also additional confirmation of the net exposure of the fund in particular where funds use derivatives.
Simplistically, if the sectors remain as they are more information will be required to monitor non asset based funds.
If the sectors scheme changes portfolio holdings alone will be insufficient to make an assessment of compliance and some form of self-certification may be required.
10. The monitoring was devised to deal with asset based sectors. How can it be developed to deal with new types of funds and asset allocation techniques? What information, in addition to month end portfolio holdings, should be provided? Are members willing to disclose additional information? Should the IMA introduce a mandatory sign-off from an officer of the company confirming the net exposure of the fund once/twice a year?
11. The RDR has implications for performance comparisons should asset managers launch multiple retail share classes for each fund. How should IMA sectors deal with this possible problem of which share class to track for performance comparisons?