Natixis Asset Management was this week fined €35 million and warned by the French regulator in relation to benefitting from the use of redemption fees that were meant to protect investors in certain funds offering capital guarantees.
The AMF inspected 133 of Natixis AM’s “formula funds” that offered a total guarantee on initial capital at maturity and performance based on a mathematical formula.
A “cushion” reserve built into the funds was fed partly by a portion of the fee paid by investors in the event of early redemptions to cover fund investors from risks, such as operational and tax, that were not covered by the guarantee.
But the AMF’s enforcement committee, which issued its largest ever fine to Natixis AM, said there were four regulatory breaches concerning the redemption fees in some of the funds for a period between 2012 and 2015.
There was misleading information provided in the fund prospectuses about how half of the redemption fees were used and the fees did not always benefit the funds, the AMF said.
There was a breach of the obligation to act in the sole interest of unit holders because of “unjustified charges”, evaluated at €15.6 million, as net redemption fees were transferred from the net assets of the funds to a liability account.
The transaction led to a decrease in the net asset value of the funds and an entry in an account from which Natixis AM was the sole beneficiary.
The firm also exceeded the maximum rate of management fees set out in the prospectuses to the tune of €3.6 million. This was done by the reintegration of redemption fees in the liability account into management fees during the period of time investigated and considering the transaction as remuneration for the asset manager.
A fourth breach was failing to include the amount of the redemption fees in the management fees and communicating this clearly.
The enforcement committee also determined two regulatory breaches for some of the inspected funds related to the “structuring margin” that was also used to feed the protective cushion.
One of these was that in the last financial year of the funds the maximum rate of management fees set out in the prospectuses was exceeded by €12.5 million due to a calculation concerning the remainder of the structuring margin after the guaranteed formula was met, and money used by Natixis AM as its own remuneration, the AMF said.
The committee considered that the maximum rate of management fees should be assessed by financial year rather than over the lifespan of the funds, and also that once the maximum rate of management fees provided for in the prospectuses had been attained, Natixis Asset Management “should have enabled the unit holders to benefit from the remainder of the structuring margin rather than appropriate it for itself”.
In a statement, Natixis Asset Management denied any irregularity and said it had acted in good faith in its interpretation and in the interests of its clients.
The firm, part of Natixis Global Asset Management, said formula fund holders were “in no way adversely affected and were fully informed in accordance with applicable regulations”, and that it will appeal against the decision.
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