Insufficient reporting says SEC boss

CIS or mutual funds as they are commonly referred to have been enjoying an ever growing presence on the TT financial landscape since 1981.

He said while there was phenomenal industry growth rates coupled with high concentration levels, there was limited standardisation of practices and insufficient adherence to good corporate governance standards.

He also said it was difficult to properly compare performance among funds.

On average, he said no more than two families of funds report at least monthly or quarterly to boards of directors, adding that most funds are reported to investment managers.

Internal reporting is done with the board of directors or trustee on investment performance, portfolio transactions, income and expenses, sales and redemptions, net assets and valuation of assets.

He noticed that while fund families in banking groups publish reports at least annually in accordance with Central Bank guidelines, there was still insufficient reporting to investors.

As far as his analysis goes, Oborne said the collective investment scheme industry in 2004 stood at about $27.billion.

He noted that 61 funds were registered – 31 local and 30 foreign, noting that total funds under management (FUM) in 2004 stood at $27.09 billion.

FUM for 2005 was estimated at $34 billion he said, adding that ten new funds were registered between October 2004 and September 2005.

In giving a breakdown of industry concentration, he said 78% of FUM are in money market funds; 19.3% in growth and income funds and 1.93% in equity funds.

There were small amounts in annuity, bond and hybrid funds. But 77% of total FUM were invested in TT$ funds. Of this, 55% in money market funds, 23% invested in US$ funds

Of this 22% were in money market funds, he said.

Over 80% of investments in equity and bond funds were made by institutional investors, he added.

In her address, Lynette Ramoutar, Director Legal Advisory and Enforcement, SEC, said investment guidelines contained provisions that are designed to bring the regulation of CISs in Trinidad and Tobago to the level of international best practice.

She said what was adopted was a “disclosure and substantive regulation approach” consistent with practice in Canada and the US.

Some of the issues addressed in the guidelines include continuous financial reporting similar to those already observed by other issuers of securities and nomenclature rules to ensure that fund names are not misleading There also needs to be prospectus disclosure that ensures adequate disclosure of both general risks and those associated with a fund’s specific investment objectives to existing and potential investors.

Like Osborne, she said fund governance was needed to ensure adequate separation of functions to protect investors’ interests.

Among the rules, she said the trustee of a CIS must be held responsible for the supervision of the activities of all the parties involved in the management and administration of the CIS. But the trustee is under a fiduciary duty to effectively manage the trust and to exercise a degree of care, diligence and skill, she said, noting the custodian of a CIS is liable for losses arising out of its failure to meet such standards.

However, the manager of a CIS shall not act as a trustee or as a custodian of the CIS. However an affiliate of the manager may act as a trustee or as a custodian of the CIS provided that the majority of the board of such affiliate consists of directors who are not managers or directors of the manager’s board.