IMA outlines options for Absolute Return

The IMA has outlined three options for the Absolute Return sector as part of its consultation on the sector’s future.

The asset manager trade body is considering redefining and dividing the sector and group the funds alongside traditional asset-based sectors.

One option being explored is to sub-divide the Absolute Return sector, indicating which funds are targeting more stable outcomes, based on cash benchmarks. Other funds would remain within the existing umbrella sector. (article continues below)

Another option would be to sub-divide the funds by hedge fund-style categories, such as long/short or global macro strategies. A further option is to keep funds within a single sector and allow it to grow, but rename and redefine it. Additional information would allow division by assets and investment strategy.

In May 2011, after its review of the managed funds sectors, the IMA said it would review the Absolute Return sector after it reached its third anniversary, and would conclude during 2011. However, a decision on the sector will not now be made until the end of 2012 as it seeks responses to its latest consultation by July 3.

Last year Morningstar, which monitors funds for the IMA, announced it would be creating 18 sub-sectors as an alternative to the broad Absolute Return sector.

In a speech earlier this year, Jane Lowe, director of markets at the IMA, said the sector had been treated as “immature” by the asset manager trade body.

She said there had been a wide range of views from fund managers, ranging from those favouring an asset split, to timeframe changes, volatility measures, a common benchmark or for it to be left alone.

Lowe said whatever happened with the sector review, there was a need for better information for consumers.

Absolute return products have come under scrutiny by both advisers and the regulator over a number of issues.

In the FSA’s Retail Risk Conduct Outlook, the regulator highlighted the product area as one of “potential concern”.

It warned it would be looking at the extent of the risks posed by the funds and cautioned advisers who recommended the funds to clients.