Better Finance raises concerns over compliance issues
13 May 2019 London
Image: Shutterstock
Better Finance has raised “serious concerns” with regards to exchange-traded fund (ETF) manager’s compliance with the rule from the European Securities and Markets Authority (ESMA) that 100 percent of the net income from securities lending must be returned to the funds.
A research paper by Better Finance suggested that a significant part of the net income derived from securities lending is not returned to fund investors as it should be.
The research found that one manager’s returns were 95 percent of the revenues to their fund, meaning they had designated just 5 percent to cover for the operational costs incurred.
Other managers, however, have misappropriated up to ten times that amount (49 percent).
Better Finance said it urges national competent authorities and ESMA to investigate how
operational costs incurred by securities lending can vary so dramatically–from 5 percent to 49 percent of revenues–from one fund manager to the other.
The research paper is part of Better Finance’s Fund Research project, an umbrella research activity aimed at providing qualitative and quantitative assessments of the EU market for retail investment funds, focusing on UCITS and alternative investment funds.
Commenting on the findings, Better Finance, said: “Securities lending or repurchase agreements should always be aimed at increasing the return of the fund and can’t be used to generate surplus income for the fund management company. Yet in practice many asset managers pocket from a third to nearly half of the revenues generated from securities lending.”
A research paper by Better Finance suggested that a significant part of the net income derived from securities lending is not returned to fund investors as it should be.
The research found that one manager’s returns were 95 percent of the revenues to their fund, meaning they had designated just 5 percent to cover for the operational costs incurred.
Other managers, however, have misappropriated up to ten times that amount (49 percent).
Better Finance said it urges national competent authorities and ESMA to investigate how
operational costs incurred by securities lending can vary so dramatically–from 5 percent to 49 percent of revenues–from one fund manager to the other.
The research paper is part of Better Finance’s Fund Research project, an umbrella research activity aimed at providing qualitative and quantitative assessments of the EU market for retail investment funds, focusing on UCITS and alternative investment funds.
Commenting on the findings, Better Finance, said: “Securities lending or repurchase agreements should always be aimed at increasing the return of the fund and can’t be used to generate surplus income for the fund management company. Yet in practice many asset managers pocket from a third to nearly half of the revenues generated from securities lending.”
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