GUIDANCE STATEMENT ON BROADLY DISTRIBUTED POOLED FUNDS WEBINAR

Transcription

1 GUIDANCE STATEMENT ON BROADLY DISTRIBUTED POOLED FUNDS WEBINAR Ann Putallaz, Ph.D., CIPM Chair, Pooled Fund Working Group, Pooled Fund Advisory Team Principal, AFP Consulting, LLC Beth Kaiser, CFA, CIPM Director Investment Performance Standards, CFA Institute 4 April

2 WEBINAR AGENDA 1. Reasons for this Guidance 2. Public Comments 3. Funds within the Scope of this Guidance 4. Firms within the Scope of this Guidance 5. Defined Terms 6. Required Items 7. Recommended Items 8. Safe Harbor Provision 9. Next Steps 10. Resources 11. Q&A 2

3 HOW TO ASK A QUESTION You may ask your questions by doing the following: Type your question in the Q&A box at the bottom of your screen: We will try to answer your question during the Q&A sessions. If we can t get to your question during the Q&A sessions, or if you have any follow up questions after the webinar, please submit your question to the GIPS Helpdesk at gips@cfainstitute.org and we will respond to you via later. Note: You may download a copy of this presentation at any time during this webinar. 3

4 REASONS FOR POOLED FUND GUIDANCE Composites are: - the foundation for the 2010 edition of the Global Investment Performance Standards (GIPS ). - not appropriate for all investment products, including pooled funds. GIPS 2020: a current initiative to make the GIPS standards more universally applicable across all types of investment products The Guidance Statement on Broadly Distributed Pooled Funds: a bridge between the 2010 edition of the GIPS standards and GIPS

5 REASONS FOR POOLED FUND GUIDANCE By providing a bridge to GIPS 2020, this guidance will help to: - Provide clarity on what the GIPS standards require and recommend with respect to pooled funds. - Establish a minimal level of information to be provided to prospective pooled fund investors. - Emphasize the priority of local laws and regulations. - Provide guidance as to best practices regarding pooled funds. Note: Not all jurisdictions have robust local laws and regulations regarding pooled funds. 5

6 BENEFITS OF POOLED FUND GUIDANCE For prospective pooled fund investors: Establishment of the minimal level of information to be provided to prospective pooled fund investors Potential enhancement of investor confidence Greater comparability of pooled fund information across jurisdictions and fund families 6

7 BENEFITS OF POOLED FUND GUIDANCE For firms managing pooled funds: - Clarification of responsibilities relating to pooled funds and the GIPS standards - Potential for more effective competition - Illustration of best practices relating to the marketing of pooled funds Local regulators: - Illustration of best practices for use in developing pooled fund regulations 7

8 PUBLIC COMMENTS Approximately 40 public comments received from: - 13 countries - Fund companies - Industry groups - Country sponsors - Individuals 8

9 PUBLIC COMMENTS Significant diversity in responses: - Comfortable with overall approach, but suggested some modifications - Wanted voluntary guidance only nothing required - Wanted guidance to be applied only in jurisdictions where there are no local regulations regarding pooled funds 9

10 PUBLIC COMMENTS Many requests for additional clarification, especially regarding - Funds within scope - Firms within scope - Materials within scope - Pooled fund net/net return (some found the term itself to be confusing) Significant diversity of opinion on best location for required items 10

11 PUBLIC COMMENTS Widespread agreement on some points: - The GIPS claim of compliance for pooled funds should be a recommendation not a requirement. - A fund company should not have to offer or provide a compliant presentation to prospective pooled fund investors (for the composite containing the pooled fund) unless requested to do so. 11

12 DIFFERENCES BETWEEN THE EXPOSURE DRAFT AND THE FINAL GUIDANCE STATEMENT One goal of this webinar is to point out the key differences between the Exposure Draft and the final Guidance Statement. Red text in the webinar slides is used to highlight these differences. 12

13 FUNDS WITHIN THE SCOPE OF THIS GUIDANCE In response to requests for greater clarity on funds within scope, the final Guidance Statement has three specific criteria for funds targeted by this guidance. Publicly available pooled investment vehicles that meet the following three criteria: 1) The pooled fund is broadly distributed; 2) There is typically no or minimal contact between the firm marketing the pooled fund and prospective pooled fund investors; 3) The firm has the ability to influence the pooled fund s official documents or marketing materials. 13

14 FUNDS WITHIN THE SCOPE OF THIS GUIDANCE These three criteria encompass funds sold in both the primary and second markets. Primary Market: Fund shares are bought from and sold to the fund. Examples: Mutual funds, unit trusts Secondary Market: Fund shares trade on an exchange. Examples: ETFs, Closed-End Funds 14

15 FUNDS WITHIN THE SCOPE OF THIS GUIDANCE There is a clearer explanation of what is meant by broad distribution. Broad distribution refers to the fact that the pooled fund is available to multiple investors. - No minimum number of investors is necessary for a pooled fund to qualify as broadly distributed. 15

16 FUNDS WITHIN THE SCOPE OF THIS GUIDANCE There is clarification regarding the criterion of typically no or minimal contact between the firm marketing the pooled fund and prospective pooled fund investors. The typical practice for marketing the fund is the defining criterion, not the approach used for a specific marketing opportunity. If a pooled fund meets the criteria specified in this guidance, but happens to be occasionally marketed in a one-on-one presentation, the Guidance Statement would still apply. 16

17 FUNDS WITHIN THE SCOPE OF THIS GUIDANCE There is a clearer explanation of the reason for the exclusion of certain types of pooled funds, such as hedge funds. Certain types of pooled funds hedge funds, real estate funds, private equity funds are complex investment vehicles with a typical marketing practice that involves direct discussion between the firm managing the fund and the prospective investor. Excluded if the typical marketing practice involves direct contact with investors, as is usually the case not because of type of assets or complexity. 17

18 FIRMS WITHIN THE SCOPE OF THIS GUIDANCE The guidance applies to firms that: Manage one or more pooled funds. Have the ability to influence official pooled fund documents or fund-specific marketing material. The guidance does not apply to firms that manage pooled funds but do not have the ability to influence fund documents. - Example: A firm hired as a sub-advisor that is not involved in creating fund materials 18

19 FOCUS AND APPROACH OF THIS GUIDANCE STATEMENT Focus: solely on the content and distribution of pooled fund materials to prospective pooled fund investors Approach: A minimalist approach: - To encourage consistency and minimize conflicts between the GIPS standards and local laws and regulations; and - To take into account the practicalities of the market- many large global firms with hundreds of funds and fund share classes in different jurisdictions. 19

20 DEFINED TERMS: POOLED FUND NET RETURN Pooled Fund Net Return The name of this term has been changed from Pooled Fund Net/Net Return in the Exposure Draft to Pooled Fund Net Return in the final Guidance Statement. Many commented that the term Pooled Fund Net/Net Return was confusing. 20

21 DEFINED TERMS: POOLED FUND NET RETURN Pooled Fund Net Return (cont d) Time-weighted return Net of all fees charged against the fund (transactions costs, investment management fees, custody fees, legal expenses, and all other administrative and other costs) 21

22 DEFINED TERMS: POOLED FUND NET RETURN Pooled Fund Net Return (cont d) Sales charges and loads -Should not be included in the calculation of the Pooled Fund Net Return many regulators don t allow inclusion. -Treatment of sales charges and loads whether or not deducted from pooled fund net return - should be disclosed. 22

23 DEFINED TERMS: POOLED FUND NET RETURN Pooled Fund Net Return (cont d) Slight change in disclosure: -Exposure draft indicated that the deduction of sales charges or loads from returns should be disclosed. -Final Guidance Statement indicates that the treatment of sales charges and loads whether or not they have been deducted from the pooled fund net return should be disclosed. 23

24 DEFINED TERMS: POOLED FUND NET RETURN Pooled Fund Net Return (cont d) Likely to differ from the net return typically shown in a GIPS-compliant presentation - More fees and expenses are deducted from a Pooled Fund Net Return than the investment management fees required to be deducted from the gross return to arrive at the composite net return. 24

25 DEFINED TERMS: OFFICIAL POOLED FUND DOCUMENT Official Pooled Fund Document Specific official offering document or documents required by local regulators to be presented to prospective pooled fund investors prior to or concurrent with initial purchase of a pooled fund Language has been added to emphasize that: - a) this document may be focused on one fund or multiple funds; and - b) the term does not refer to documents created primarily for current shareholders, such as annual or semi-annual reports. 25

26 DEFINED TERMS: PROSPECTIVE POOLED FUND INVESTOR AND FUND-SPECIFIC MARKETING MATERIAL Prospective Pooled Fund Investor Any investor who is interested in investing, and eligible to invest, in the type of broadly distributed pooled funds targeted by this Guidance Statement Fund-Specific Marketing Material Material, in electronic or paper format, intended for prospective pooled fund investors who are considering investing in that specific pooled fund. Examples: fund fact sheets, fund profile sheets 26

27 REQUIRED ITEMS: LOCATION Required items must be included in at least one document that is intended to reach prospective pooled fund investors prior to or concurrent with their purchase of the fund. The document may be either: - An official pooled fund document required by local regulators to be given to prospective pooled fund investors; or - Fund-specific marketing material prepared by the firm for prospective pooled fund investors. 27

28 REQUIRED ITEMS: LOCATION Note: The required location in the final Guidance Statement represents a significant change from the Exposure Draft. - In the Exposure Draft, required items had to be included in both the official pooled fund document and the fund-specific marketing material for prospective pooled fund investors, if that material presented investment performance. - In the final Guidance Statement, firms have a choice regarding the document in which the required items must appear. 28

29 REQUIRED ITEMS: LOCATION Required items may be shown on the same pages or different pages of the chosen document. The Appendix of the Guidance Statement has specific examples of how the required items may be shown in various documents. Note: If local regulations prohibit the inclusion of one or more required items in materials for prospective pooled fund investors, that must be documented in the firm s policies and procedures. 29

30 REQUIRED ITEMS: DESCRIPTION OF THE FUND 1. Description of the pooled fund s investment mandate, objective, or strategy - Language added to the final Guidance Statement to indicate that the description need not be lengthy but must convey key objectives 30

31 REQUIRED ITEMS: AN INDICATION OF RISK 2. An indication of the pooled fund s risk either a qualitative narrative or quantitative metric - as mandated by local regulators. If none mandated by local regulators, the firm may choose an appropriate risk measure or qualitative disclosure. - Language added to the final Guidance Statement to indicate that any risk measure chosen by the firm should be one that a prospective investor is likely to understand 31

32 REQUIRED ITEMS: POOLED FUND RETURNS 3. Pooled fund returns calculated according to the methodology and for the time periods required by local regulators - If the methodology is not mandated by local regulators, a Pooled Fund Net Return must be presented. 32

33 REQUIRED ITEMS: POOLED FUND RETURNS If time periods are not mandated by regulators, one of the following options must be presented: - One-, three-, and five-year annualized returns through the most recent period; * - Period-to-date returns in addition to one-, three-, and five-year annualized returns through the most recent period;* or - Period-to-date returns in addition to five years of annualized returns. * *(Annualized/annual returns since inception of fund if fund in existence for less than five years). 33

34 REQUIRED ITEMS: POOLED FUND RETURNS Language added to the final Guidance Statement to: a) indicate that additional time periods may be shown; and b) to clarify that if the material is not prepared for a specific fund share class, the firm must present returns based on the generally available share class with the highest fee. 34

35 REQUIRED ITEMS: CURRENCY 4. Currency used to express performance - It must be clear to investors what currency is used to calculate fund returns. Language added to the final Guidance Statement to indicate that: - The currency used may be conveyed in words or by using a currency symbol; and - If local regulators assume local currency is used, currency must be addressed only if it deviates from what is assumed. 35

36 SIGNIFICANT CHANGE IN REQUIRED ITEMS Benchmark total returns (for the same time periods as the pooled fund) and the benchmark description - This was required in the Exposure Draft. - In the final Guidance Statement, benchmark total returns and description is moved to a strongly recommended item. 36

37 RECOMMENDED ITEMS: BENCHMARK RETURNS AND DESCRIPTION 1. Benchmark total returns (for the same time periods as the pooled fund) and benchmark description strongly recommended As noted in the previous slide, this item was moved from a required item in the Exposure Draft to a strongly recommended item in the final Guidance Statement. 37

38 RECOMMENDED ITEMS: SALES CHARGES AND LOADS 2. Sales Charges and Loads - A pooled fund s sales charges and loads should be disclosed in the fund s official pooled fund document and fund-specific marketing material. - The treatment of sales charges and loads whether or not they have been deducted from fund returns should be disclosed. 38

39 RECOMMENDED ITEMS: SALES CHARGES AND LOADS 2. Sales Charges and Loads (cont d) Note: The Exposure Draft recommended that there be a disclosure if the presented pooled fund returns reflect the deduction of sales charges and loads. The final Guidance Statement modifies this recommendation slightly. It is now recommended that firms disclose whether or not sales charges and loads have been deducted from the presented pooled fund returns. 39

40 RECOMMENDED ITEMS: GIPS POOLED FUND CLAIM OF COMPLIANCE 3. GIPS Pooled Fund Claim of Compliance should be used in the official pooled fund document and in fund-specific marketing material XXX, the firm managing the pooled fund, claims compliance with the Global Investment Performance Standards (GIPS ). For more information about the GIPS standards, please visit 40

41 OFFER AND PRESENTATION OF A COMPLIANT PRESENTATION The offer and/or provision of a compliant presentation is neither required nor recommended. Firms have met their obligation under Provision 0.A.9 (requiring firms to make every reasonable effort to provide a compliant presentation to all prospective clients) if all required items are included in at least one document that is intended to reach prospective pooled fund investors prior to or concurrent with their purchase of the fund. Note: Firms must provide the compliant presentation for the composite in which the fund is included if requested to do so. 41

42 SAFE HARBOR PROVISION Note: One of the most significant differences between the Exposure Draft and the final Guidance Statement is the addition of a Safe Harbor Provision. Certain legal and/or regulatory regimes may require firms to provide prospective pooled fund investors with materials that include the four items required by the final Guidance Statement. In such cases, CFA Institute will review the legal and/or regulatory requirements and determine if they qualify for inclusion under the safe harbor provision. 42

43 SAFE HARBOR PROVISION CFA Institute will maintain a list of legal and or/regulatory regimes that qualify for inclusion under the safe harbor provision. Firms that fall under a jurisdiction that qualifies for the safe harbor provision will be considered to have met the requirements of Provision 0.A.9 (regarding the provision of a compliant presentation) and the Guidance Statement on Broadly Distributed Pooled Funds. A firm may request a review of its local laws and regulations to determine if it may make use of the safe harbor provision. Requests should be directed to gips@cfainstitute.org. 43

44 SAFE HARBOR PROVISION Important reminder: The safe harbor provision does not mean that the firm has met all of the requirements for compliance with the GIPS standards. It means that the firm has met the requirements regarding the content and distribution of pooled fund information contained in this guidance. All other requirements of the GIPS standards must be met for a firm to claim compliance with the GIPS standards. 44

45 NEXT STEPS Effective Date: 1 January 2018 Firms are required to apply this guidance beginning 1 January Firms are encouraged, but not required, to apply this guidance prior to the effective date. Two documents were published initially: The Guidance Statement on Broadly Distributed Pooled Funds A document highlighting the differences between the Exposure Draft and the final Guidance Statement Note: Q&As will be published as needed. 45

46 POOLED FUNDS AND GIPS 2020 This Guidance Statement focuses on one aspect of pooled funds - the content and distribution of materials to prospective pooled fund investors. The discussion around this guidance highlighted a number of other issues relevant to pooled funds and other investment vehicles that deserve significant attention. GIPS 2020 will take a look at these issues with the goal of making the GIPS standards as relevant as possible for all investment vehicles. This part of the journey for pooled fund guidance is over but broader discussions are occurring. Stay tuned!! 46

47 RESOURCES Important resources for your reference: GIPS Helpdesk - For follow-up questions pertaining to the information presented during this webinar, or for any technical inquiries pertaining to the GIPS standards GIPS Website where you may find: - Complete list of guidance statements - New Q&A database - Brochures & webcasts - Newsletter archive GIPS Newsletter Twitter 47

48 HOW TO ASK A QUESTION You may ask your questions by doing the following: Type your question in the Q&A box at the bottom of your screen: We will try to answer your question during the Q&A sessions. If we can t get to your question during the Q&A sessions, or if you have any follow up questions after the webinar, please submit your question to the GIPS Helpdesk at gips@cfainstitute.org and we will respond to you via later. Note: You may download a copy of this presentation at any time during this webinar. 48