Over 300 funds use tarnished Libor benchmark

London Square MileNearly 200 funds that carry the valuable Ucits tag reference the inter bank lending rate that Barclays bankers tarnished.

There are 309 mutual funds that are domiciled in Europe that use some form of Libor as their benchmark or part of their benchmark, according to Lipper. Of those, 198 are Ucits funds.

An undetermined number of bankers within Barclays tarnished the Libor benchmark by lying about the rates of interest that other banks were prepared to pay to borrow Barclays funds on the London inter bank lending market.

The scandal of Libor has plainly hit other banks too. But investors will also no doubt be asking themselves how it affects them.

As well as Libor’s use as an investment benchmark, it is also referenced when writing out certain swaps contracts, which pension schemes may use to control liabilities.

Libor can also be used as a ‘hurdle’ rate that a hedge fund will have to meet before performance-related fees kick in. If the Libor rate has been artificially lower after Barclays and, allegedly, certain other banks falsely reported lower lending rates, then investors may have started paying fees sooner than they should.

A key issue appears to be to what extent the false Libor rates were the same as those that were published and therefore referenced.

Investors are still grappling with the consequences.

David Paterson, head of corporate governance at the UK’s National Association of Pension Funds, said in a statement: “The impact of Libor manipulation on pension funds is hard to pin down, and could have happened through a range of financial instruments.”

When Funds Europe asked about the implication for investment funds, the Investment Management Association said it was too early to answer specifics. Last week it put out a statement, saying: “To the extent that any bank may have profited from manipulation it will by definition have been at the expense of other participants in the market.  But identifying who, and by how much is at this stage extremely difficult.”

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