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The rules also allow for the introduction of "limited issue" and "guaranteed" funds to enable firms to offer new products, including those which offer some protection against unit price falls. The rules enable UK authorised funds to:
- Extend the range of investments of funds, that qualify for the EU passport, from those investing in shares and bonds to a broader mix of assets such as derivatives, deposits and funds of funds;
- Cap the number of units that are issued (under existing rules funds have to remain open to investors). This will make it easier for a fund to offer some form of protection of returns; and
- Use the words "guaranteed" or terms implying a degree of capital security in their names where that is justified by the arrangements put in place and to use such terms would not mislead investors.
The expansion in investment choice results from early implementation of a European Directive on UCITS (Undertakings for Collective Investment in Transferable Securities). The amendments allow fund operators to mix different asset types in one fund.
Limited Issue Funds
These rule changes will allow scheme operators to cap the number of units in issue and so enable them to be managed more efficiently particularly in illiquid markets (such as smaller companies and some emerging markets). These changes will also allow funds to structure products that provide some sort of downside protection.
Guaranteed funds
New guidance covers arrangements whereby the FSA may allow authorised funds to include the word "guaranteed" or other terms implying a degree of capital security in their names. Previously the FSA has not permitted funds to use such terms.
Funds will be able to label themselves as "guaranteed" if there is a separate full money back guarantee. Other terms implying a degree of capital security will be permitted in controlled circumstances.
Disclosure
Effective disclosure to investors of how funds will take advantage of these wider powers is a key part of the new rules. Consumer facing material must include details of investment policies and any guarantees or limits on issue.
