The Swedish Investment Fund Association has noted and welcomed the proposals put forward by the government regarding new reporting requirements for active funds starting next year, which would require portfolio managers explain their level of active risk taken versus the benchmark.
The proposals come in context of concerns that some funds marketed as active are in fact hugging their benchmarks, while still charging active management fees.
For most funds this is not news, the Association says in a statement: "Since more than 15 years back members of the Association decided to account for precisely this measure of activity for managed funds."
"The industry has agreed that it is important for investors and advisers to have the ability to themselves read off the level of active risk in the fund. That is why the Association introduced a requirement in its guidelines in 2004. Now it will become law to account for these key numbers, which in practice means that all Swedish funds, even those that are not members of the Association, must present them," added Association chief executive Fredrik Nordström.
"What is new for all fund providers is the demand to describe how the management is pursued in relation to the relevant benchmark index, and why the benchmark index used is relevant. This will facilitate understanding among investors."
The proposal (https://www.regeringen.se/4942e8/contentassets/0d500815b1024d9da0548483584a51da/aktivitetsgrad-i-fondforvaltning-prop.-20181962.pdf ) has been put forward by the minister for Financial Markets Per Bolund.
In announcing it, he said: "People should not be cheated into paying for something that they don't get. We are now making it more difficult for unserious players to take out higher fees. This change will benefit many retail savers."
Among the requirements is one that says if the fund has existed for two or more years, the manager should also indicate a measure of active risk for each of the previous ten years, or as long as the fund has existed.
For concentrated funds or those with specific holdings for which there is no relevant benchmark index, the managers need to also explain this. The information should be available on the fund manager's website, in the relevant key information document and in the annual report for the fund.
The requirements apply to all securities funds, including AIFs, as well as AP7 in the premium pension system.
The proposal is for the rules to come into effect by 1 January 2020.