See below to find answers specific to managed investment schemes. If you don’t find the answers you are looking for, please contact us.
If a restricted scheme XYZ invests in another registered scheme ABC (such as a master trust), does scheme XYZ need to monitor investments made by ABC to ensure there has been no breach of scheme XYZ’s in-house asset rule (as set out in section 176 of the FMC Act)?
No, investments made by registered scheme ABC will not count towards restricted scheme XYZ’s in-house asset rule. This is because the definition of ‘in-house asset’ in section 176(3) specifically excludes investments made into another registered scheme.
Our view is since the initial investment in registered scheme ABC is not considered to be an in-house asset, any investments made by the registered scheme should also not be considered an in-house asset.
What is a manager’s basic fee?
The manager’s basic fee is a subset of a fund’s overall management and administrative charges. It refers to the fees charged by the manager for their services.
In this respect it distinguishes the management and administrative charges which originate from the manager from those which have been passed onto investors for services provided by other parties (underlying funds, auditors, supervisors etc).
We note that in some instances, third parties services are charged to the manager. The manager then charges these fees to the fund. These third party service charges should not be classified as the manager’s basic fee.
References: Schedule 4, clause 1 and 63 of the FMC Regulations.
Changes to quarterly fund updates
MIS managers must make a fund update publicly available within 20 working days after the last day of each quarter of each disclosure year.
If the managed fund is a restricted scheme or closed scheme, or the managed fund has a closed section, fund updates must be publicly available within 3 months after the last day of each disclosure year, or the balance date of the scheme in each year.
Details can be found in the FMC Regulations as follows:
Amendments to fund update requirements
The Financial Markets Conduct Amendment Regulations 2015 (FMC Amendment Regulations 2015) introduced new requirements for Managed Investment Scheme quarterly fund updates. These requirements are found in clauses 41(19) – 41(33).
These amendments are in effect and need to be factored into your quarterly fund updates.
We’ve provided a list of the key amendments below, but as this is not a comprehensive list we recommend you also get a full legal review of your next fund update.
The key amendments to note are:
1. You may add a section headed ‘market update’ and provide a brief comment on the market conditions relevant to the fund.
(Ref: clause 41(21) of the FMC Amendment Regulations 2015 which applies to Schedule 4, clause 55(3) of the FMC Regulations 2014)
2. You must include the following additional statement when a fund has performance fees:
“See the product disclosure statement for more information about the basis on which performance fees are charged.”
or set out the information required by clause 33 of the FMC Regulations 2014 for the specified fund.
(Ref: clause 41(28) of the FMC Amendment Regulations 2015 which applies to Schedule 4, clause 63(7A) of the FMC Regulations 2014)
3. Where an individual asset is an interest in a fund that is not a related underlying fund, and there is no one asset type that’s appropriate, it must be classified as an interest in a diversified fund.
(Ref: clause 41(32) of the FMC Amendment Regulations 2015 which applies to Schedule 4, clause 70(5) of the FMC Regulations 2014)
4. If currency hedging is material to the specified fund, you must include a statement of the extent of currency hedging in your fund update.
(Ref: clause 41(33) of the FMC Amendment Regulations 2015 which applies to Schedule 4, clause 71(3) of the FMC Regulations 2014)
If I am a restricted scheme, when does my obligation to provide a fund update commence?
A restricted scheme must produce a fund update within three months of the balance date for the scheme, or the last day of the scheme’s disclosure year.
The obligation to provide a fund update only applies to schemes after their effective date of transition. This means that if the scheme’s balance date occurs prior to their effective date, the scheme will not be obliged to provide a fund update until the following balance date.
For example: A restricted scheme has a balance date of 31 March. It transitions to the FMC Act on 31 May 2016. The scheme will not be required to provide a fund update until 30 June 2017.
References: Regulation 56(2) of the FMC Regulations.
My fund provides a number of fee rebates to investors, can these be included as part of the worked example of the return for a hypothetical investor in the fund update?
The worked example in the fund update is intended to provide information at a general level only. It must be calculated based on the fund’s actual total fund charges. The example cannot be modified to take into account rebates which are only available to some investors.
However, the fund update may include additional information about the effect individual discounts or rebates may have, when the manager genuinely believes such information is necessary to clarify the worked example. In deciding whether further information is required, the manager should consider whether the rebates are available to all investors, if so, the extent it will affect the worked example.
I am a licensed MIS manager producing my first fund update. Part of my fund is invested in New Zealand dollar denominated bonds issued by foreign issuers (Kauri bonds). These bonds are registered, but not listed, in New Zealand. For the purposes of the asset categories specified in clause 1(4)of schedule 4 of the FMC Regulations should these bonds be categorised as ‘New Zealand fixed interest’ or ‘international fixed interest’?
We recognise the asset categories specified in clause 1(4) of schedule 4 could lead to some uncertainty in relation to certain fixed interest investments such as Kauri bonds. The FMA and the Ministry of Business, Innovation and Employment are currentlyworking to clarify this issue. In the meantime, you could either categorise these bonds as ‘New Zealand fixed interest’ or ‘international fixed interest’ depending upon your assessment of the characteristics of the bonds.
Your PDS and SIPO should provide clarity around the types of assets the fund invests in. We will provide further guidance to assist MIS managers to take a more standardised approach to categorisefixed income assets in the near future.