The Central Bank of Ireland examined 2,550 Irish-authorised Ucits funds classified as actively managed, as at March 2018, finding 7% were in fact closet trackers based on the definition from the European Securities and Market Authority.
The Esma definition describes active managers “staying very close to a benchmark and therefore implementing an investment strategy which requires less input from the investment manager [and] charge management fees in line with those of funds that are considered to be actively managed”, the CBI said.
It confirmed it would not be naming the 182 closet trackers identified.
In March 2018, the FCA ordered asset managers to pay investors £34m in compensation after overcharging for “closet tracker” funds, in a move described as “hugely positive” for investors. It reviewed 84 potential closet tracker funds and revealed that 64 of them were required to make it clearer to consumers “how constrained they are”.
Closet tracker reveals more untoward behaviour
Director general Derville Rowland (pictured) said the CBI would be following up with funds deemed to be closet trackers having already contacted 62. They will have until 31 March 2020 to update their prospectus or Kiids.
Rowland said: “Investors in Ucits have a right to rely on the information in the prospectus and the Kiid and funds have an ongoing duty to ensure that this information is accurate and that the fund is managed in investors’ best interests.”
The closet tracker review also found instances of funds targeting outperformance of a benchmark that was smaller than its fees meaning even the fund would have exceed its stated objective in order for investors to achieve returns above the benchmark.
The CBI also raised concerns about poor governance on boards and Kiids that lacked benchmarks in the past performance section.