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By Holly Cook| 7-25-2013 12:01 AM

Who's Really Managing Your Fund?

Morningstar is now asking fund companies to name all the managers of a fund, so investors know exactly who's calling the shots

Holly Cook: When making your investment decisions, it's important that you've got the best information possible. Morningstar helps in providing that information and we've recently made an interesting change that Andy Pettit, Director of European Data and Research Strategy here at Morningstar, is going to tell us a bit about.

Andy, nice to have you with us.

Andy Pettit: Thanks, Holly. It's good to be here.

Cook: So, what is this change that we’ve just made that you want to tell us about?

Pettit: It concerns information about who is managing your money. So, it has always been a minority of funds, which tell you no more than the fact that it's a team managing your money, which gives you nothing to gauge the stability, the size or the tenure of that team. So, what we are doing is to take away that option and redoubling our efforts to be told the individuals that are actually making those decisions on your behalf.

Cook: So, it's not about ‘this fund is managed by team’. It's actually ‘these are the actual individuals who are taking your money and putting it to good use’?

Pettit: Exactly. So that you can see how long they've been there, what other funds they might be involved in managing, and just have a more complete picture of who is looking after your investments.

Cook: So, are we doing this just in the UK or are we doing it elsewhere?

Pettit: We've done it here in the UK just recently. We have precedent in the US some years ago where we did exactly the same thing, which culminated in regulation which enforced the disclosure of not only who the manager is, but information about their incentive packages and other funds that they are running. Then we'd like to take that forward by expanding the same concept across Europe and have efforts in place in the Netherlands, Germany, Scandinavia currently.

Cook: So, that's great, so actually Morningstar's effort to sort of disclose this information for the end investor has actually led to regulation being changed in the US?

Pettit: Exactly right, yes, and that might be a distant dream in Europe but it's one small step in the grander scheme of disclosure.  I think the forthcoming directives at the European level—the UCITS area and the alternative investment fund directive—are going to put more things in place regarding the incentive packages and compensation schemes of the managers, which again is a great thing going forward.

Cook: So, are there any other changes in the pipeline that we are looking to make?

Pettit: We'd like to follow that up with more clarity around investment objectives. We still see a lot of funds which say no more than ‘we are seeking capital growth’, which doesn't tell you a lot about how they are going to achieve that. Also, ideally, knowing a bit more information about stakes that managers have in their own funds, which you get through closed-end funds because of the listing rules and a similar thing for open-end investments would also be beneficial.

Cook: And so this information that we are talking about specifically with the naming of the managers managing the money, end investors, individual investors can now see that on the Morningstar.co.uk website, and the advisors can see it in the Advisor software, the Workstation software, and our institutional clients can also see that in Direct; so this is publicly available information now.

Pettit: Exactly right. Yeah, and not only that. If there are lead managers amongst the team they are indicated, you can screen that by longevity of service and so forth.

Cook: Great. Well, thanks very much for explaining this change that helps the investors make their investment decisions.

Pettit: Pleasure. Thank you.

Cook: For Morningstar, I'm Holly Cook. Thanks for watching. 

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