multi-manager industry reacts to plan to limit investment flexibility
The FSA is expected this week to back down on a regulatory proposal that would limit the funds in which the majority of funds of funds can invest.
As it stands, the new rule, due to come into force on 1 September, would prevent non-Ucits funds of funds, the vast majority of the market, from holding both Ucits and non-Ucits funds in the same portfolio. They would need to choose to hold either Ucits or non-Ucits vehicles.
The rule conflicts with other fund of funds rules the regulator had proposed and is viewed with concern by fund of funds managers.
Following consultation between the regulator, industry bodies and fund of funds managers, it is anticipated the FSA will announce it is scrapping the proposal, contained in planned amendments to its Collective Investment Schemes Sourcebook, published on 17 July.
It is expected the regulator will instead allow funds of funds to be governed by the principals outlined in its Consultation Paper 185, published in May.
CP185 proposed the introduction of a regime for non-Ucits regulated UK retail funds that would allow them to invest in either class of scheme, enabling them to be flexible in getting their funds Ucits-compliant by a deadline of February 2007.
Toby Higbin, product development manager at Credit Suisse Asset Management, said his group has been in discussions with the FSA, IMA and other fund of funds groups and is confident the regulator will revise the sourcebook amendment this week.
Mark Dickson, head of product development and product management at Invesco, said fund of funds groups would in future have two choices: either to take the proposed non-Ucits route and have the flexibility to invest in all UK-listed funds, or to become Ucits compliant.
If a fund becomes Ucits compliant, it would be restricted to investing just 30% in non-Ucits funds. However, it would also have the flexibility to invest in offshore-listed funds.
At present, all newly-launched funds of funds would have to adopt the new Ucits regulations, limiting their portfolios to holding only 30% in non-Ucits funds, whereas all funds launched before 13 February 2002 would have until February 2007 before their portfolio would need to be Ucits compliant.
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