UK think-tank calls on fund managers to give annual return estimates

A wide-ranging report from the UK’s Centre for Policy Studies has called on fund managers to provide an estimated annual return figure for clients to improve transparency.

The report, written by pensions analyst Michael Johnson who worked as an investment banker for 21 years, argues the industry needs to provide what he called an Indicative Net Return estimate to help improve the industry.

“Fund managers should provide an Indicative Net Return (INR), using a standardised range of conservative (i.e. gilt-based) assumptions for fund return,” said Johnson.

Johnson added the Total Expense Ratios (TER) currently used were ‘misleading and inadequate’ because they only captures explicit expenses charged directly to a fund, and exclude trading costs and commission.

Instead he is calling for a Total Cost of Investment measure, which includes transaction costs and the bid-offer spread, in a call which echoes that of fund managers including Fidelity which have already suggested such a measure.

“It should take into account any performance fees, with transaction costs based upon the prior year’s portfolio turnover rate, this will help tackle a serious issue within the industry as when fund management fees are negotiated down, a significant rise in portfolio turnover can be commonplace.”

Johnson added mandatory rules should be in place for fund managers to disclose all counterparty risks.

He argues the income derived from counterparty risk should also be stated, to give investors greater clarity.


This article was first published on Investment Week

Close Window
View the Magazine

I also agree to receive editorial emails from InvestmentEurope
I also agree to receive event communications for InvestmentEurope
I also agree to receive other communications emails from InvestmentEurope
I agree to the terms of service *

You need to fill all required fields!