Better fund governance

About now, a number of non-executive independent directors are parachuting in to take up their places on fund boards as the UK’s new fund governance regime takes hold.

The iNEDs’ job will be to scrutinise whether investors are getting good value from their investment funds. The Lens thinks it’s worth our investor readership knowing about this because the FCA is not very proscriptive about how value should be determined, leaving it largely up to the fund houses to do (though iNeds would have to agree with it).

Each fund company is going to define value in their own way, according to one expert the Lens spoke to recently.

Performance will inevitably be a key factor in determining value, but it might not be a simple case of performance against a fund benchmark. Funds may find themselves gravitating towards wider peer-group comparisons, too.

Even the period of performance that will be assessed is still open to question. One year, three, five….

There may even be different definitions of value for each fund at the same firm. An absolute return fund’s value is intrinsically different to an active equity fund, or to a short-term bond fund, the Lens is told. A boutique asset manager with tailor-made client service may offer a different kind of value to an industrial-scale provider. But both versions of value could be valid.

As with performance, cost scrutiny will inevitably be part of the Assessment of Value regime – but that’s not to say that a fund that has higher relative cost does not provide value.

Some funds are more expensive than others. This is unavoidable. An absolute return fund or a fund providing a volatility overlay could be at the higher end of the cost spectrum but still provide good value.

Once again, this could become very granular. Perhaps pushed by their iNeds, funds could decide to produce costs comparisons between the myriad share classes that exist.

So why not have a standard template, rather than a potential plethora of interpretations of value?

The answer is quite reasonable, as far as the Lens is concerned, because we heard that this was to do with competition rules. A firm may offer a value assessment that shows, fairly, that it is competitive, whereas a one-size-fits all template would perhaps block the opportunity to display it.

Although fund houses will be forging their own definition of value, it is worth investors out there knowing that this debate is taking place. You might want to influence it.

If you do want to, keep in mind this is happening now. Funds approaching their year-end soon will be the first of the funds to fall in scope with the Assessment of Value regime and between producing their year-end accounts and the subsequent publication of the new Assessment of Value reports, funds will have just four months.