Fund managers have welcomed the FSA’s push for further disclosure around absolute return funds.
Last week, the FSA announced it is planning to require fund managers to carry risk warnings on absolute return funds to inform investors there may be a risk to their capital, provide information on the anticipated timescale for a positive return and advise there is no guarantee that such a return will be achieved.
Fund managers will have up to six months to change their funds’ prospectuses.
Cazenove Capital Management head of investment funds Robin Minter-Kemp says it is sensible for the regulator to impose “over the top transparency” in the sector.
He says: “It is fair to say there are more eclectic messages in the absolute return sector than any other long Investment Management Association sector. So I can understand why the regulator wants over the top transparency in this sector as there is scope for misinformation because of the complexity of the strategies.”
Standard Life head of UK wholesale Jacqueline Lowe says the additional disclosure is a better outcome than scrapping the absolute return label altogether.
She says: “There has been concern that the FSA could change the absolute return name, which would be a retrograde step because there is no better way of describing what the funds are trying to achieve. Going for the sensible option of clarifying what the label means is a big step forward.”
But Seven Investment Management marketing director Justin Urquhart-Stewart says the proposal does not go far enough.
He says: “The name absolute return serves only to confuse investors. They think it has an implied chance of more return and this is misleading. The actual name needs to be changed to give investors some idea of the level of risk in a way they can understand.”
An IMA spokeswoman declined to comment, saying it is still consulting on the absolute return sector.