NZ managers cop flak for fund closures
Fund managers in New Zealand are being criticised for their decision to close many of their funds following the terrorist attacks in the United States last week.
Managers closed their funds as they said they could not calculate accurate unit prices for assets that trade on US markets. However, some funds that didn't own US assets, or owned assets that were traded on markets other than the stock exchange were closed. By closing the funds, managers were denying investors access to their capital.
FundSource executive chairman David van Schaardenburg and Credit Suisse First Boston vice president Peter Irwin have both criticised the practice.
"It is the role of fund managers to manage funds, not to prescribe to investors how they should be behaving emotionally in times of crisis," Irwin says.
"Nor, is it their role to deny investors access to their capital, whether such access is logical, rational or simply a reaction driven by panic. The rights of the individual must remain paramount."
Van Schaardenburg suggests advisers and investors should carefully consider how managers have acted in this situation when they go to invest money.
He says some managers closed all their funds, not just those which held US assets.
"The bottom line is that fund managers should seek to keep their funds open at all times. Some were a bit too quick to close their doors,” he says.
Van Schaardenburg doesn't accept the argument that managers can close funds in times of high volatility. One of his concerns is that people are moving away from vehicles such as superannuation funds because of their lack of liquidity and locked-in investment periods. However, they are now finding that unit trust managers are denying them access to their money.
New Zealand managers are not alone in facing criticism. The issue has come up in other countries such as the United Kingdom. In that country the Financial Services Authority urged managers last week to keep funds open so people could trade.
Securities Commission chief executive John Farrell says there is a potential problem. The two points he makes are that the criteria for closing or suspending funds should be clearly pointed out to investors in the investment statement.
"This is quite an important point of disclosure," he says. "I think it has the potential to be a matter of concern."
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