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Alternative Market Briefing

As much as 15% of UCITS funds could be closet indexers - ESMA

Wednesday, February 03, 2016

Bailey McCann, Opalesque New York:

The European Securities and Markets Authority has put out a new statement alleging that as much as 15 percent of the UCITS industry are made up of funds that are essentially closet indexers. This means that investors could be paying active management fees for a product that is effectively passive in nature and hugs the index.

ESMA conducted research on a sample of 2,600 funds for the period 2012-2014 to determine whether it could find any indication of closet indexing at an EU-wide level. Based on that research, the regulator says between 5 and 15 percent of UCITS funds appear to be hugging their benchmark. ESMA also reviewed the fund disclosures to see if this was stated and found that in many cases investors would have no way of knowing if they were invested in a closet indexer.

"Investor protection is core to our mission and the preliminary findings raise questions that merit closer analysis. Fund managers must provide investors with information that is fair, clear and not misleading. In partnership with national regulators we are taking a closer look into this issue," Steven Maijoor, ESMA Chair said in a statement on the findings.

ESMA has said it will be taking a closer look at UCITS funds to determine if they need to do a fund-by-fund check. The regulator will also be examining an enforcement route if disclosures are found to be intentionally vague about this issue.

Managers of UCITS and mutual fund produ......................

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