Mutual fund industry must come clean

He said he is also worried that investors have no say in investment decisions made by fund managers.

Speaking at a training forum hosted by the Unit Trust Cooperation (UTC) at Kapok Hotel, Nurse sparked interest when he said the market was being controlled by what he called "nine guiding hands," an obvious reference to the companies in the mutual fund sector.

He also questioned whether the mutual funds collective investment vehicles had any impact on the stock market.

To give an idea of how buoyant the industry was, Nurse said out of 221 mutual funds operating in the country, 174 was registered outside TT, while 47 was operating here. He said only 35 of the foreign funds were actively trading in TT.

He said nine entities seemed to be controlling the market, among them being the UTC, one bank, one insurance company and five non-bank institutions.

Nurse also said there was tremendous growth of the mutual fund sector over the years : In December 2002 it was TT$5 Billion; at the end of 2004 the figure stood at $TT26 billion — a five hundred percent increase. At the end of 2005, Nurse said he expects to see TT$34 billion in funds under management.

While pension fund managers are substantial investors, Nurse took the view that they should be made to disclose information on investments made.

"It is a picture of substantial investment," he told journalists attending the forum, noting too that there was about 672, 000 unit holders with over 500, 000 held by the UTC.

"Who is looking out for their interests," he said. In the case of RBTT, he said it was both the custodian and manager of the funds and questioned whether that was good for their investors.

He also raised the issue of mutual fund auditing, suggesting that there was a conflict of interest by having one firm doing the audit.

He was critical of the billions being held by a few "interconnected houses" and saw as a flaw the fact that many mutual fund operators were not required to report their operations.

He disagreed with those who said that the mutual fund market should be left alone, saying that since a trust was set up to manage the funds, somebody has to report it.

He said in the mutual fund industry, there was a case for continuous reporting.

He went so far as to say that one slight problem "can bring the entire edifice tumbling down."

He said that in a recent survey of the industry, there were no audited accounts for the years 2003 and 2004 for an investment company.

To bring the industry under scrutiny, Nurse said the SEC was embarking on a computerised mutual funds monitor. "It will no longer be a secret held between some people and some brokers."

He said as far as he knew and apart from the UTC, annual general meetings on mutual funds were not held. Investors, he argued, should know the status of their investments. "You don’t own it, you only manage it," he said, referring to the companies that controlled the billions in mutual funds.

Eutrice Carrington, vice president, Asset Management, UTC, said the growth of the industry could be traced to the favourable fiscal environment. From her research, she said figures show that the growth showed a considerable spike in equity-based funds. She also gave a breakdown of the industry:

UTC - 42 percent

RBTT- 24 pervent

Republic Bank - ten percent

FCB (First Citizens) - four percent

NEL - 19 percent

GHL - one percent.

She noted that insurance companies, too, was using mutual funds as an investment outlet for their premiums.

Carrington called for a greater oversight in the mutual funds industry "as soon as possible," stressing that the industry was responsible for people’s resopurces.