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Hedge fund fee disclosure plan 'falls short' says FCA

Hedge fund fee disclosure plan 'falls short' says FCA

A major overhaul of the way that alternative fund fees are disclosed has failed to hit the required level of transparency, the chair of the Financial Conduct Authority disclosure working group has said.

The Standard Boards for Alternative Investments (SBAI), formerly known as the Hedge Fund Standards Board, has today released results of a year-long study into guidance on member fees.

The group, which says it represents private equity and hedge fund assets worth more than £3 trillion run by more than 200 fund groups, has formulated the Standardised Total Expense Ratio or STER, a single figure which it said would support the ‘comparison and monitoring of fees and expenses’.

Speaking to the FT, chair of the technical team overseeing best practice Chris Seir said that the proposal ‘fell short’ of what he would like to see however, and did not account for key costs.

‘The SBAI’s STER explicitly excludes cost items like trading commission, equity financing and stock borrowing costs, which can be very large,’ said Sier, who was appointed to steer the institutional disclosure working group in August

‘The STER is not suitable as a method for calculating all, or even most, of the cost incurred by hedge fund managers.’

The SBAI said that variable expenses were disclosed separately and that the diversity of the industry, which encompasses both some the least and most liquid investment strategies, made a fair universal measure of costs difficult.

Executive director of the organisation Thomas Deinet said the exclusion was a necessary step to make an ‘apples to apples’ comparison possible across the sector.

‘While the Standards already require full disclosure of fees and expenses, the STER provides a recommended method for aggregating, categorising and disclosing fund costs, including “soft dollared” [previously bundled] research costs,’ he said.

The proposals follow the results of the FCA's asset management review into the retail funds industry this summer, which found poor price competition in the sector.

 

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