Jornada Publica sobre la industria de Inversión Colectiva La Inversión Colectiva de Gestión Alternativa Fernando Silva CMVM
Issues to be addressed HF definition: need to now the phenomena before regulating it. Governance aspects: conflicts of interest, asset segregation and importance of a transparent and reliable asset valuation process. HF and retail investors: SHF or FoHF Contradiction between claims for light-regulation and for retail dissemination? Portuguese regime: Special Investment Funds (FEI).
HF definition: need to now the phenomena before regulating it HF are not always hedged or levered structures. HF tend to need high flexibility in investment policies and usage of complex derivative structures, borrowing and leverage. Nonetheless, UCITS III may allow for some type of HF to fit within harmonization. Managers are normally paid through performance fees and put their own money in the fund. HF do not present dealing NAV on a daily basis (more commonly, on a monthly or even quarterly basis). HF are not (anymore) only aiming at capturing savings of wealthy individuals but retailization is still low (IOSCO 2006). These characteristics are not enough to allow for a common or unique definition of what HF are (IOSCO 2006).
Governance aspects Responsibility for the custody of assets should be entrusted to a third party independent of the manager, domiciled in the HF jurisdiction (opposite to the views of CE Expert Group s on HF). Valuation principles should be clearly stated and implemented or at least scrutinized outside the scope of the manager and prime brokers to deal with obvious problems such as: determining the fair value of iliquid assets; need to survive and reveal good performance; fees being a function of performance; dependency to trading forcing optmistic valuations. The importance of Internal and External Audit as ex-ante and ex-post reconfirmation of sound practices.
HF and Retail investors: SHF or FoHF? SHF or FoHF: ensure sound Governance; Transparency and selling information; attention to risk and liquidity issues. FoHF should not be just a pretty wrap of a set of problems. FoHF: allows for diversification of management risk and investment selection benefits from due diligence by professional experts, but still capture specific HF risks arising from the investment strategies used (although diversification minors chances for a global default). FoHF in retail: need to narrow eligibility of target funds to those who comply certain quality criteria (as it is done in CNMV regulation). Marketing windows should match the valuation periodicity of HF (discourage the use of non-dealing NAV for target funds within FoHF dealing NAV). Imposition of minimum subscription limits while reasonable as a primary objective may also have a perverse effect (no proved correlation between financial capacity and literacy).
Contradiction between claims for light-regulation and for retail dissemination? Investors s underprotection? Unfair competition? Are regulators views UCITS bias? Is this wrong?
Portuguese regime: Special Investment Funds (FEI). - Legal Framework (DL n.º 252/2003 and CMVM regulation n.º 15/2003) Main features: FEI: sub-category of CIS, whose regime is subsidiary applicable (e.g in what respects the existence of a depositary and of a compliance function within the manager as well as valuation procedures); Information requirements: simplified and full prospectuses and also a special subscription form highlighting risks of HF, which has to be expressely signed by the investor; Reporting: disclosure (monthly) of full portofolios and Yearly and half-yearly accounts; External Auditor registered at CMVM must validate HF accounts and valuation procedures. Flexibility: short selling, leverage, derivatives and periodicity of NAV calculation. Promoter of HF has to demonstrate expertise, skill and experience and also present training programs to distribution networks if HF aims at retail investors. Promoter has to propose and justify minimum subscription value in accordance with the HF characteristics and targeted investors; Case-by-case approval by CMVM, which may impose restrictions on the type of HF targeted investors.