The Swedish government is to become the first in Europe to formally investigate closet-tracking funds that charge high fees for active management but do little more than mimic an index.
Per Bolund, Sweden’s deputy finance minister and minister for capital markets and consumers, confirmed last week that the government would investigate closet trackers, which have been widely criticised by consumer groups and academics for misleading investors.
A spokesperson for Mr Bolund said that the Swedish government would provide more information on the scope of its investigation this spring. The investigation will form part of a review of asset management regulation in Sweden that began last September.
The Danish regulator, Finanstilsynet, launched an investigation into so-called “benchmark-hugging” funds last September and found that almost a third of the 188 domestic equity funds in Denmark could be classified as closet trackers.
No other national authority has formally investigated the issue. It has received more attention in Sweden after the Swedish Shareholders Association launched a class-action lawsuit in December against the country’s second-biggest asset manager, accusing it of mis-selling closet-tracking funds to retail investors.
Carl Rosen, chief executive of the shareholder group, believed the government’s investigation would culminate in closet-tracking funds being singled out and highlighted to investors. There are roughly 5.5m Swedish retail investors in equity funds, according to Mr Rosen.
He said: “This is a very important step forward. So far we have seen very limited discussion about these issues in Sweden and across Europe. Being discussed at a government level is important and will lead to change. There is concern that people are paying for a service they do not get.”
Guillaume Prache, managing director of Better Finance, a Brussels-based investor rights group, similarly described the Swedish government’s commitment to investigating this matter as “great news”.
“This will put additional pressure on European regulators to look seriously into this big potential area of abuse,” he said.
Better Finance wrote to the European Securities and Markets Authority last October highlighting the Danish investigation and calling on the European watchdog to examine the closet-tracking phenomenon more closely.
Mr Prache referenced data that show fund fees in general in Europe are too high. Actively managed equity funds typically charge 1.70 per cent in fees, compared with 0.70 per cent for equivalent products in the US. “There is a deep issue of excessive fees being charged,” Mr Prache said.
Esma chairman Steven Maijoor said in November that the European watchdog would “gather more information to assess the scope of the [closet-tracking] issue”. “There is no further information to give,” a spokesperson for Esma told FTfm in January.
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