IMA reviews impact of credit crunch on authorised funds

The Investment Management Association (IMA) has published a report on how the credit crunch has impacted UK authorised funds.

Not only have investors suffered losses across all major asset classes but funds have also been subject to stress testing of their structures and the regulation governing them.

Overall, the review finds that the authorised funds regime has proved generally robust. The clear pressure points have been price volatility and poor liquidity in the capital markets. These have led to difficulties in valuing assets reliably and "Fair Value Pricing" techniques have been increasingly used to ensure fairness for all investors - incoming, outgoing and continuing. As a result IMA has also reviewed and re-issued its Fair Value Pricing guidance and issued extra guidance on the calculation and disclosure of fund yields.

The review also concluded that funds' key features were important factors in their robustness. Despite this, in the fifteen months to March 2009 seven funds (out of a total of 2,350) suspended. Although this is a very small percentage of the market - and most were not mass market retail funds but were targeted at sophisticated investors with high minimum subscription levels - this is not cause for complacency. The review therefore makes recommendations to improve further investor protection safeguards and to deter future suspensions.

Julie Patterson, Director of Authorised Funds & Tax at the IMA, said: "Given the unprecedented events of the last 2 years the industry reviewed the impact on authorised funds and took on board any lessons which arose. It is encouraging that the regulatory regime and industry practice have ensured that authorised funds have stood up well in the current crisis. As a result of this due diligence exercise we shall be taking forward a small number of recommendations where it is thought that rules could usefully be clarified or industry practice more fully articulated, in order to strengthen the regime further."