The Investment Management Association (IMA) will rename the Absolute Return sector as the Targeted Absolute Return sector as it completes a long-awaited review of the space.
Having delayed its final response to the May 2011 review several times, the new name is now set to come into force at the start of June.
The changes, which mark the culmination of a review first announced in May 2011, will also see the industry body overhaul its requirement for funds to beat a cash plus benchmark over rolling 12-month periods.
Under the new definitions, all funds in the sector must, at a minimum, target positive returns in any market conditions.
All funds in the sector must also state a timeframe over which they are aiming to meet their specified target. The target may not be longer than three years.
The trade body will also seek a commitment from fund groups that they will not make comparisons against the sector as a whole.
Firms have until 20 May to inform the IMA whether they wish to remain in the sector.
The IMA will also provide more detailed information about the sector on its consumer website, enabling users to filter by different criteria.
"One key purpose of the Absolute Return sector review was to make sure that consumers do not inadvertently perceive there to be some implicit guarantee of positive returns due to the name of the sector. Adding the ‘targeted' description to the sector name fulfils this purpose," said IMA chief executive Daniel Godfrey.
"We will continue to keep a close eye on the sector to see whether sub-groups could be created to further refine the value of our sector data for users.
"We will also keep a close eye on performance and, should it become necessary, set performance criteria, which could lead to a fund's expulsion from the sector on performance grounds. The monitoring we have announced today will be an important tool in this regard."
First established in 2008, the Absolute Return sector has come in for criticism in recent years owing to the disparate nature of the sector and many funds' inability to produce positive performance.
The FSA's 2012 Retail Conduct Risk Outlook also raised concerns over Absolute Return funds, saying that the names and investment objectives could imply they would produce a guaranteed return.
The regulator subsequently called for fund groups to provide better disclosure on the risks of AR funds.
The IMA had previously announced last June that it would consult members on three possible future paths for the sector:
- Subdividing the existing sector to indicate those that were aiming to beat a cash benchmark (around 40 funds), or
- Subdividing the existing sector by hedge fund style categories such as long/short, global macro and so on, or
- Retaining one large sector but renaming and redefining it, as well as providing additional information on the IMA consumer website that enables investors to filter via a number of criteria. Suggested new names included 'Outcome Orientated, 'Target Funds', 'Hedge Funds' and 'Alternatives'
It is the third of the above options that most closely mirrors the final results of the review.
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