Dated at Auckland this 11th day of July 2018.
Nick Kynoch,
General Counsel.
Statement of reasons
This notice comes into force on 17 July 2018 and is revoked on the close of 16 July 2023.
Every manager of a registered scheme that is a managed fund is required to publish a quarterly (or, in the case of a restricted scheme, an annual) fund update that complies with Schedule 4 of the Financial Markets Conduct Regulations 2014 (the Regulations). The fund update must include, for the purposes of benchmarking the fund’s performance, information on the return that would have been obtained on a broad-based securities index or broad-based securities indices that are appropriate in terms of assessing movements in the market in relation to the returns from the assets in which the fund invests (the market index requirement).
If there is no broad-based securities index that is appropriate in terms of assessing the returns from certain assets that the fund has invested in, the manager of the fund is exempted by this notice from the market index requirement in respect of those assets (relevant assets).
Instead, under the conditions of the exemptions, the manager must include the return on a peer group index or peer group indices, provided the manager can identify a peer group index that is both suitably independent (or widely recognised and widely used in financial markets) and likely to be useful to investors. The manager must also record information on each identified peer group index in the register entry for the offer and include an explanatory note in the fund update. This must include a statement that the peer group index or indices may be a less reliable indicator of performance than an appropriate market index.
If there is no appropriate market index and no appropriate peer group index for the relevant assets, the manager is exempt from the market index requirement in respect of those assets. Instead, under the conditions of the exemptions, the manager must include an explanation in the register entry for the offer as to why there is neither an appropriate market index nor an appropriate peer group index for those assets and include an explanatory note in the fund update.
The risk indicator for the exempt fund, as disclosed in the PDS and in the fund update, must be calculated and filled in in a manner consistent with the approach taken in reliance on the exemptions.
The Financial Markets Authority (the FMA), after satisfying itself as to the matters set out in section 557 of the Act, considers it appropriate to grant the exemptions because,—
without the exemptions, managers of funds with no appropriate broad-based securities index cannot comply with the market index requirement and might publish the returns on an index or indices that do not reflect the assets the fund invests in and are therefore not relevant to investors when assessing the performance of the fund. This may be confusing for investors:
the conditions to the exemptions require managers to give investors the return on a suitable peer group index, or composite index instead (if one is available). The peer group index must be independently administered or widely recognised and widely used in financial markets. Information must be provided about the peer group index, or composite index, disclosed:
the FMA is satisfied that the exemptions are desirable in order to promote the purposes of the Act. Specifically, to promote the confident and informed participation of businesses, investors, and consumers in the financial markets and to avoid unnecessary compliance costs. The conditions to the exemptions require managers to provide information that is fit for purpose. This is a practical way of fulfilling the aim of the market index requirement when the requirement cannot be complied with in accordance with its terms:
the FMA is further satisfied that the extent of the exemptions is not broader than is reasonably necessary to address the matters that give rise to the exemptions because only managers that cannot report against an appropriate market index will have the benefit of the exemptions.
Issued under the authority of the Legislation Act 2012.
Date of notification in Gazette: 13 July 2018.
This notice is administered by the Financial Markets Authority.