Business Irish

Wednesday 12 December 2018

Central Bank probes investment fund claims

Inquiry: The Central Bank’s Director General Derville Rowland said any findings of ‘closet indexing’ will lead to supervisory action. Photo: Colin O'Riordan
Inquiry: The Central Bank’s Director General Derville Rowland said any findings of ‘closet indexing’ will lead to supervisory action. Photo: Colin O'Riordan
Donal O'Donovan

Donal O'Donovan

The Central Bank has begun an analysis to find out whether investors are being ripped off by investment firms claiming to actively manage portfolios that in reality are set up to track the markets.

The Central Bank's Director General Derville Rowland said it has begun analysis on potential closet indexing of UCITS funds.

Undertakings for the collective investment of transferable securities (UCITS) are mutual funds that pool investor capital to invest on the markets.

Closet indexing, or index hugging, refers to the practice of fund managers claiming to manage investment portfolios actively when in reality the fund tracks a benchmark.

Derville Rowland said the Central Bank wants to ensure investors are not misled or misinformed.

"We are keen to ensure investors are not misled or misinformed about their investments in Irish domiciled funds. That includes the issue of 'closet indexing'."

The Central Bank has begun analysis on 2,000-plus Irish domiciled UCITS funds that report to be actively managed.

Analysis will be conducted on over 2,000 Irish domiciled UCITS that report to be actively managed.

If indications of 'closet indexing' are found it will be followed with supervisory action, she said.

Assessing the implementation of Central Bank requirements for fund managers known as 'CP86' is also a focus for 2019, she said.

"The objective of CP86 is to improve the governance of fund management companies with a view to enhancing effectiveness and improving investor protection outcomes.

"It is a key priority for the Central Bank to ensure that investors are not disadvantaged by funds operating in a manner that is not consistent with the way in which they have presented their objectives, policies and charges in the fund documentation."

Irish Independent

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