Fri, 24/06/2011 - 06:00
Hamid Parsa (pictured), Director of Sales/Business Development, Alceda Fund Management SA, assess the challenges posed by the introduction of the Key Investor Information Document (KIID)…
One of the key mandatory changes under the UCITS IV directive, which comes into force on 1st July 2011, is that the simplified prospectus is to be replaced by the Key Investor Information Document (KIID). Briefer, clearer and simpler than the simplified prospectus, the KIID aims to make it easier for investors to assess and compare UCITS funds.
The key driving force behind the introduction of this new document is the recognition that the simplified prospectus fails to convey the key characteristics of a fund in an understandable and clear format. A prospectus is seen as a much too technical and complex document that tends to vary in content and length. This will be changed with the introduction of the KIID, which aims to inform investors about a fund in a simple and comparable format.
The KIID is a concise, two-page document with a highly standardised format that aims to provide information about a fund in plain language that is easily comprehensible to all investors. As a minimum requirement, it is to include practical information such as contact details, a description of the Fund’s investment objectives and strategies as well as information about the Fund’s charges and fees. In addition, it will include a synthetic risk and reward profile, which includes a risk indicator and a narrative section. Unlike the simplified prospectus, the KIID also includes information about the Fund’s past performance. The set structure of the KIID aims to ensure that investors are able to easily compare different KIIDs with each other, leading to greater transparency and clarity for investors.
Responsibility for producing the KIID and for making it readily available for points of sale lies with the Management Company, who has to update the document at least once a year to keep it accurate. The past performance data section of the document is required to be updated 35 business days after year end at the latest. Any important changes that are made to the Fund also require an updated KIID to be published promptly.
Notably, the KIID has to be prepared at a share class level and, according to a CESR recommendation, it will be fairly difficult to combine several share classes from the same Fund in one single KIID. In addition, the KIID must be published in the language of the country where it is being distributed. Following a one year transition period the KIID will become mandatory for existing UCITS funds from July 2012. UCITS funds launched after as from 1st July 2011, however, will already be governed by the UCITS IV directive and will therefore be required to produce a KIID.
It is widely recognised that a key benefit of the KIID is the better protection that it offers investors. For asset managers and fund administration companies, however, it represents a number of operational challenges that require forward planning. Fund administration companies in particular have to be well prepared for the additional resource requirements resulting from this new document.
At Alceda, we recognised these challenges very early on. We created a dedicated KIID working group last year who identified all the requirements resulting from this new document and made sure that we are set-up effectively to cater to this new requirement well in advance.
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