View the article online at http://citywire.co.uk/money/article/a748201
Invesco Perpetual fined £18.6m over fund failings
(Update) Invesco fined for breaches that saw it compensate investors in its two big Income funds, previously run by Neil Woodford.
City regulator the Financial Conduct Authority (FCA) has fined fund group Invesco Perpetual £18.6 million for exposing investors to greater risks than they had been led to expect in 16 of its funds.
The FCA said that between May 2008 and November 2012, Invesco did not comply with investment limits designed to protect investors by limiting their exposure to risk. That led to £5.3 million of losses on three funds, including the huge Invesco Perpetual Income and High Income funds, formerly run by star fund manager Neil Woodford (pictured), who has since left the group to set up his own venture.
Invesco also did not clearly inform investors or explain the risks of its use of derivatives in the Income and High Income funds, the FCA said. Trades were also recorded late in its fixed income division, meaning funds could have been wrongly priced. However, Invesco said that issue did not lead to funds needing to be repriced.
A further failing of its fixed income business was over the way it monitored aggregated trades, where a number of funds buy or sell the shares or bonds of a single company at the same time. Invesco's manual process meant it could not properly tell if trades were allocated fairly between funds, according to the FCA.
Investment limits broken
A further 13 funds were affected by breaches of investment limits but did not incur losses and did not have to be reimbursed by Invesco. They were:
- Invesco Perpetual Latin American
- Invesco Perpetual Emerging European
- Invesco Perpetual European Opportunities
- Invesco Perpetual UK Aggressive
- Invesco Perpetual Corporate Bond
- Invesco Perpetual Money
- Invesco Perpetual Managed Growth
- Invesco Perpetual Tactical
- Invesco Perpetual Global Bond
- Invesco Perpetual UK Strategic Income
- Invesco Perpetual UK Enhanced Index
- Invesco Perpetual Distribution
- Income Perpetual Monthly Income Plus
Most of the investment limit breaches relate to an FCA rule that dictates no more of 10% of a fund can be held in shares of one single company. But the fund's high conviction stakes of above 5% must not make up a combined 40% of the fund. The FCA said that one of the Invesco funds broke this rule on 25 November 2010, when the shares of one of the companies it owned jumped, causing it to breach the 5% threshold, and taking the aggregate high conviction holdings in the fund above 40%. The next day, the fund bought more of the shares, exacerbating the rule breach. The FCA said that over the four-year period, Invesco committed 22 trades that broke the rules in this way.
Eight trades breached FCA rules stating funds cannot control more than 20% of a company's shares carrying voting rights, while three trades broke a rule that funds cannot own more than 10% of non-voting shares in a single company.
Derivatives not disclosed
The derivatives failings, which relate solely to the Income and High Income funds, relate to a lack of disclosure. These funds were allowed to take positions of up to 20% of their assets in derivatives, but their simplified prospectuses carried no direct reference to this. Despite this, Invesco began introducing borrowing to the funds through derivatives from mid-2010, and by 2012 this accounted for around 5% of the funds, or £1 billion.
The FCA said Invesco acted quickly to improve its systems and controls and fix the problems it had identified.
‘Investors of all sizes trusted Invesco Perpetual to manage their money,’ said FCA director of enforcement and financial crime Tracey McDermott. ‘They signed up for a certain level of risk but we found Invesco Perpetual’s actions were at odds with investors’ reasonable expectations.’
Invesco Perpetual chief executive Mark Armour said he was confident the fund group’s systems were now ‘strong, effective and complaint with all applicable regulations’.
‘The small number of impacted funds were fully reimbursed. In this instance, we clearly fell short of the high standards we consistently strive to deliver. However, we are pleased that this matter has been fully resolved with the FCA and is now closed.’
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Look up the funds
- Invesco Perpetual High Income Inc
- Invesco Perpetual Income Inc
- Invesco Perpetual Managed Income Inc
- Invesco Perpetual Latin American Acc
- Invesco Perpetual Emerging European Acc
- Invesco Perpetual European Opportunities Acc
- Invesco Perpetual UK Aggressive Acc
- Invesco Perpetual Corporate Bond Acc
- Invesco Perpetual Money Acc
- Invesco Perpetual Managed Growth Acc
- Invesco Perpetual Tactical Bond Acc
- Invesco Perpetual Global Bond Inc
- Invesco Perpetual UK Strategic Inc (No Trail) Inc
- Invesco Perpetual Distribution Acc
- Invesco Perpetual Monthly Income Plus Inc
- Invesco Perpetual UK Enhanced Index (No Trail) Acc
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