Managers move to order EU investment funds clutter[de] 

With the Commission postponing its plans to review the regulatory framework of the EU retail funds market (see EurActiv 15/04/08), the industry has come up with its own clarifying proposals. Yesterday (23 June), EFAMA presented a new detailed classification of the funds operating in the EU, with the intention of increasing transparency by facilitating comparisons between the expanding galaxy of financial instruments.

"With growth in choice comes the risk of confusion: investors' inability to compare different products may lead them to select inappropriate products or deter them from investing entirely," argued Robert Higginbotham, the chairman of the European Fund Categorisation Forum (EFCF), the body charged by EFAMA with introducing new standards in the EU fund industry.

The classification splits EU funds into four broad categories - equity, bond, money market and mixed – and sets clear parameters for each section.

For example, an equity fund should invest at least 85% of its assets in stocks. In order to be classified as specialised in a specific sector like information technology or energy - or a specific country or region - it has to invest at least 80% of its assets in the selected options. This criterion will also be applied for equity funds investing in companies with small capitalisation, defined according to regional parameters.

Stricter criteria will also be applied to bond funds (at least 90% of assets in fixed income securities; maximum 10% in cash; no exposure at all in equities), money market funds (differentiated according to their investment policy and by the currency of issuance of their assets) and mixed funds.

The EFCF also classifies other funds which fall outside the UCITS Directive, albeit without setting precise criteria. Among the categories defined are convertibles, open-ended real estate funds, closed real estate funds, commodities funds, asset-backed securities and so on.

"EFAMA is committed to encouraging the adoption of the classification as the industry standard. Adoption will not take place overnight as different fund classifications are currently used in many diverse ways across Europe. But now that the new classification has become reality, convergence should accelerate," stressed Mathias Bauer, the president of EFAMA.

Although already regulated by the UCITS Directive, the Undertakings for Collective Investment in Transferable Securities are still not sufficiently categorised, while they continue to grow in size and complexity, accounting for around 70% of total European investments.