Fund CEO cites greater transparency to fight failures

The chief executive of major fund manager, La Trobe Financial, has written an open letter calling for greater transparency as a key ingredient to identifying and avoiding the recent failures which have bedevilled the funds management industry.

The open letter from Chris Andrews has detailed a transparency checklist with the message that it is not about defensiveness but about leadership.

“We must raise the bar for transparency, governance, and investor protection. Let these failures be the clarion call that drives our industry forward,” he said.

“How many investors in failed funds would have not invested if this kind of information had readily been available?  How many failing funds would have been caught far earlier if these disclosures were regularly reported?   Providing fulsome information as a matter of course is the right place to start.”

“The common characteristic across these fund failures is lack of transparency.  And that must change.  It’s for that reason we so readily welcome the attention of regulators into private markets,” Andrews said.

“A uniformity and standard across private capital for valuations, conflicts of interest, fee disclosures, data and transparency will raise the bar and make for greater confidence in the sector.

But we shouldn’t wait for regulators.  All private market industry participants should focus on immediately stepping up to deliver the following:

1. Data and Transparency – Open access to uniform, detailed portfolio information including the following as a minimum:

• Number of assets

• Type of assets

• Sizes of assets

• Sectors

• Geographic spreads

• Asset quality

• Asset return profile bands

• Asset vintage and seasoning details

• Performing & non-performing asset details

1. Interconnections – Detailed explainers of complex structures:

• Corporate trees

• Outline of any related groups

• Explanation of director or shareholder participation in fund assets.

1. Valuation policy – Confirming what a portfolio is worth, providing:

• Valuation policies and how they are applied to each asset type

• Dates of valuations on assets across the book

• Description of the valuation policy’s process rigor and independence

Andrews lamented that time and again, the post-mortem of a failed fund saw similar patterns emerge – “Low quality assets which do not align with a fund’s stated investment objectives.  Complex investment structures which are too difficult to reasonably unpick let alone truly understand.  Strategies which don’t weigh up the liquidity characteristics of their underlying assets.  Managers lacking cross-cyclical experience.  Managers who didn’t put the customer at the heart of everything they do.

“Although fund failures rarely happen in slow motion, there are warning signs.  Common signs include managers relying on high-pressure sales tactics, or lesser-known groups pointing to rapid asset growth.  Consider the old cliche that if it sounds too good to be true, it usually is.  But it’s not good enough to rely on cliches when judging the security of your investment.”