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German regulator to bolster transparency rules for retail funds
December 22, 2016 / 2:00 PM / in 8 months

German regulator to bolster transparency rules for retail funds

FRANKFURT (Reuters) - Germany's markets regulator plans to require asset managers to be clearer with retail investors about how actively they manage their funds, as a result of its investigation into so-called closet index funds.

Europe's financial markets regulator said earlier this year that up to a sixth of retail-focused equity funds marketed as being actively managed may be misleading investors by covertly tracking a stock index.

Consumers have long suspected some of the funds that charge them higher fees to scour the market for the best picks may in reality be "closet" trackers that mimic the performance of stock indexes.

Actively managed funds commonly charge fees that are multiples of those charged by trackers.

German watchdog Bafin said on Thursday its own investigation turned up only a few cases in which a fund was being marketed as actively managed and in reality closely tracked a fund.

These funds, however, had significantly lower management fees than investment firms commonly charge for actively managed funds, and they were no longer being actively marketed.

Bafin said it would nonetheless introduce new transparency rules from mid 2017 that will require asset managers to disclose whether their retail-focused equity funds are actively managed or merely track an index.

If they use a benchmark, they will have to name it and also specify whether and by how much they intend for it to be exceeded or fallen below.

Reporting by Maria Sheahan; Editing by Tina Bellon and Mark Potter

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