Morningstar has called for greater transparency in the securities lending industry after conducting research into the practices of 10 European providers of physical replication exchange traded funds. Morningstar said that improvement was necessary in terms of disclosure of counterparties’ identities which remains “subject to much resistance”. Under the latest guidelines on ETFs and other UCITS-compliant funds provided by the European Securities & Markets Authority (Esma), a fund’s annual report will need to provide a list of borrowers. This should go some way to satisfying calls for greater transparency in this area.
Earlier this month Esma published ETFs and Other UCITS Issues guidelines. As reported by Hedgeweek at the time, the guidelines call for fund managers to inform investors about the securities lending practices, and return all net revenues (that is, ‘profits’) to the fund. Morningstar has found in its research that the portion of securities lending revenues returned to a fund ranges from 45 to 70 per cent of gross revenue. The new guidelines might cause some fund providers to review their revenue sharing arrangements and re-evaluate whether the fees currently charged are reasonable and justified.
Wealth managers have given out mixed signals to the proposals by the Financial Services Authority’s plans to ban the promotion of unregulated collective investment schemes (Ucis) to retail investors reported Citywire Global this week. Under the new proposals, firms will not be allowed to market Ucis to ordinary retail customers even in the context of financial advice. Sophisticated investors and HNW individuals will be exempt from the restrictions.
In other news, EFG Asset Management has launched an open-ended equity fund to invest in up to 50 Chinese and Hong Kong stocks across all capitalisations reported International Adviser this week. EFG Asset Management is the asset management arm of EFG International. Its new fund – New Capital China Equity Fund – is to be managed by Mansfield Mok, a Hong Kong-based China equity fund manager. Prior to joining EFGAM Mok co-managed the USD1.5billion GAM Star China Equity Fund, which outperformed the MSCI China Index by over 70 per cent during Mok’s five years at the helm, according to Bloomberg data.
