Norway gets tough on closet indexing

IndexAction taken by the Norwegian financial regulator against DNB Asset Management for managing an active fund closely to its benchmark has been welcomed.

Fianstilsynet, the regulator, says a DNB Asset Management fund it analysed over five years performed very closely to its benchmark but is marketed and priced as an actively managed fund, which the regulator says is “censurable and counter to good business practice”.

The firm, one of the largest asset managers in the Nordic region with €61 billion of assets under management, has received a corrective order and is expected to tell clients what it chooses to do about the fund – the Verdipapirfondet DNB Norge.

Gina Miller, who leads the True and Fair Campaign in the UK over fund managers’ charges, says the Norwegian regulator’s action over closet index tracking should shame the UK’s Financial Conduct Authority into action.

Miller, who is also a founder of SCM Private, which invests client money using index-tracking funds, says: “This Norwegian precedent may well lead to the opening of the floodgates for UK compensation claims for mis-selling and mis-management, with the biggest UK culprits likely to be UK banks and insurance companies.”

She says it is “high time” the FCA follows Norway’s example and that the FCA should force compensation for investors for excess fees charged, and mandate that UK providers follow US style rules that require all funds to reveal 100% of their holdings on-line.

The Norwegian regulator announced its action last week, says that as part of its supervision of management companies, it investigates whether Norwegian equity funds which are marketed and priced as actively managed funds are managed as they should be.

“Finanstilsynet has analysed how DNB Asset Management AS has managed Verdipapirfondet DNB Norge over the past five years. In Finanstilsynet's assessment the company's management of the fund has diverged considerably from what the investors were led to expect.”

The regulatory notice adds: “The equity fund concerned has performed very closely to its benchmark, but is marketed and priced as an actively managed fund.”

The criticism is compounded by the “considerable size of the fund”, the regulator added. The size is understood to be about the equivalent of €950 million.

DNB was unable to respond to a request for comment by press time.

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