28 August 2020
On 27 July 2020, the Monetary Authority of Singapore (“MAS”) issued Circular 32/2020 on “Good Practices for Disclosure of Actively Managed Funds” (“Circular”).
This circular sets out good disclosure practices for actively managed funds, following a thematic review carried out by the MAS on equity funds with active management mandates offered by 19 fund management companies (“FMCs”) to retail investors. These good practices relate to disclosures of the investment objective and the extent to which the portfolio deviates, or can deviate from the reference benchmark, as measured in part by quantitative metrics such as active share and tracking error. These good practices include:
- Disclosure of investment style: It is a good practice to clearly state that a fund is to be actively managed. This includes describing how the FMC intends to carry out active management of the portfolio to derive alpha. The disclosure should be plain and easily understood by retail investors.
- Disclosure of reference benchmark and its purpose: Where active funds are managed in reference to benchmarks, the relevant reference benchmark should be stated clearly in the fund documents. Where a fund is not managed in reference to any benchmark, this should be clearly stated in the fund documents, with an accompanying explanation of why a reference benchmark is not used.
- Disclosure of investment constraints and degrees of active management: FMCs should provide clear disclosures on how a fund’s investment limits and constraints can affect the risks and expected returns of their funds. This includes disclosing the degree of freedom FMCs have, relative to the benchmark. FMCs should also disclose their funds’ active share and tracking error on a regular basis, together with a clear and simple explanation of what these terms mean. The degree of active management should be described qualitatively, and supplemented by quantitative measures for investors to compare with peer funds.
- Board and senior management oversight: The board of directors and senior management of FMCs are expected to exercise effective oversight of the FMCs’ operations. This includes the provision of clear, fair, balanced, and non-misleading promotional material, that fully comply with the relevant rules and regulations. MAS expects FMCs to implement these sound disclosure practices over time, and improve their communication on how they seek to deliver value through their active portfolio management.