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FMA proposal criticised by fund managers

Fund managers are worried by Financial Markets Authority-proposed guidance on substantial product holders’ disclosure obligations, which the regulator says are designed to improve transparency and deter inappropriate conduct.

Thursday, June 15th 2017, 6:00AM 1 Comment

by Susan Edmunds

The FMA is consulting on whether the individuals who manage the money in fund management firms should make substantial product holder (SPH) disclosures about the financial products they manage.

It said one New Zealand fund manager identified both the firm and the individual in it who was responsible for managing the product as an SPH.

But most only identified the fund management firm. "This causes inconsistency in what is being disclosed to the market."

The FMA said its interpretation of the Financial Markets Conduct Act was that individuals did have a relevant interest, which should be disclosed.

If the guidance is introduced, individuals who manage funds will have to disclose when they have the power to acquire, dispose of or exercise votes attached to 5% or more of financial products in a listed issue which is held in a fund they manage, regardless of whether they have a personal holding, and also when they have a personal holding.

Rebecca Thomas, of Mint Asset Management, was concerned by the proposal.

She said the law should be changed if that was the way the FMA interpreted it. Individual disclosure is not required internationally.

"You can't have New Zealand's position being different to international best practice."

She said the more individual disclosure that was required, the more complex it would become. "It has the opposite effect of giving transparency and clarity. This is supposed to provide investors with clarity of information but multiple disclosures with multiple people being deemed to have interests makes it more confusing."

But the FMA said it would tackle a problem of potential conflicts.

"A conflict of interest can occur where an individual has a power or control over the firm’s holding in a listed issuer, as well as a separate personal holding in the same listed issuer. This might influence decision-making about the fund or the voting rights under the financial products. We understand that some, but not all, fund management firms mitigate this conflict by prohibiting their employees to have a personal holding in the same listed issuers," the FMA said.

"There is also an argument that fund managers are better aligned with the interests of investors in the fund if they hold the same investments.

"Our proposed guidance will provide greater transparency which may help to deter inappropriate conduct. The SPH regime aims to reduce the risk that the market will not be adequately informed about who controls significant voting rights in a listed issuer. In some cases, it may be that the individual and the firm each have holdings that fall below the 5% threshold but, together, they exceed the 5% threshold. We think the market would want to be informed where that individual is able to control the voting rights attached to both their personal holding and the firm’s holding.”


Tags: Financial Markets Conduct Act FMA Mint Asset Management

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Comments from our readers

On 15 June 2017 at 7:50 am b p said:
I can't see why this is even slightly controversial. If a fund manager with corporate level influence also has significant personal holdings in the same issue that the fund has holdings in, then investors should rightly know that. And certainly the regulator should be aware of it.

International best practice isn't always actual best practice.

Problem goes away if fund managers are unable to invest privately in stocks that their fund owns. They should get their investment exposure through the fund they manage.

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