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Impact Investing

IPE special report May 2018

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UK regulator sets sights on institutional cost transparency

The Financial Conduct Authority (FCA) is set to bring relevant stakeholders together to devise standardised templates for reporting costs and charges to all UK institutional investors.

The regulator announced in its Asset Management Market Study, published this morning, that it would “ask an independent person to convene a group of relevant stakeholders together” to develop the templates.

The FCA claimed the City of London would attract more international fund flows as a result of the greater competitiveness increased disclosure would engender.

The templates developed by the working party should apply to both “mainstream and alternative asset classes”, the FCA said.

It added: “We will work with these stakeholders to to consider whether any other action is necessary to ensure that institutional investors get the information they need to make effective decisions.”

Last month the Local Government Pension Scheme (LGPS) Advisory Board introduced a transparency code for asset managers, based on a model from the Netherlands and adapted by the board and Chris Sier, professor at Newcastle University Business School. Eight managers have so far signed up to the LGPS’ voluntary code.

The FCA welcomed the development and other work in this area – including a similar disclosure method proposed by the Investment Association (IA). Speaking this morning, FCA director of strategy and competition Chris Woolard made it clear that the LGPS code was a pioneering model, followed by the IA, the trade body for UK asset managers.

The FCA indicated that it did not want to convene stakeholders itself. 

Cost clarity for alternatives

The LGPS has not yet finalised its template for private equity and other illiquid strategies, but all responses to the FCA report said that private equity and hedge funds ought to be covered by the wider transparency code.

The regulator said it would consider whether any of its proposed “remedies” should apply to private equity products.

One of the asset managers already signed up to the LGPS’ transparency code, fixed income specialist Markham Rae, said it was happy for greater fee transparency to be applied to all kinds of vehicles. Kerry Duffain, head of distribution at the group, said that its own closed-end fund investing in trade finance was not covered by the LGPS code but the firm would work with any committee to ensure such deal-based vehicles were transparent.

Other commentators warned that transparency, especially around transaction costs, was harder in practice than in theory. Colin Meech, national officer for the trade union Unison and one of the architects of the LGPS transparency code, said it was only when data started appearing on spreadsheets that the true extent of costs would become apparent. “There is a long way to go,” he warned.

IPE reported yesterday that the LGPS is expecting its code to reveal investment costs across its 89 member schemes in excess of £1bn (€1.1bn) for 2017.

Unison has demanded representation on the FCA’s working party on transparency. Other expected representatives will come from the IA, the British Venture Capital Association, and the Department for Work and Pensions.

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