Transparency

Date: January 2010
Author: Peter Ellis
Price: £5000 to non-members of the Investit Intelligence Member service


Transparency is a word that seems to be on everybody’s mind. It seems that someone, somewhere is always calling for “greater transparency” to be provided. We have had the scandal of MPs’ expenses, concerns about bank charges, and reservations expressed by investment managers about board room pay. These are just some examples of where the word transparency has been widely used recently. It is not surprising then that we have started to use the word widely within the investment management industry.

This research looks at the subject of investment management transparency in an objective and dispassionate way, and transforms a huge and nebulous subject into one that is well defined and manageable.

Key findings include:

  • The scope of transparency extends across all types of client and portfolio, across all jurisdictions, and across all types of investment product and strategy.
  • Transparency is not a recent phenomenon, nor a transient one. It is possible to trace a transparency timeline that extends back over 30 years, and there is plenty of regulation in the pipeline to ensure that the industry continues moving towards ever greater transparency.
  • There are eight areas of an investment management firm where transparency is needed and two dimensions in which it needs to be delivered. These are explored in the report.
  • There is a cost associated with delivering transparency and most investment management firms cannot measure it accurately.
  • There are concerns that the move to greater transparency will create problems for outsourcing arrangements.

Our research has established a best practice for transparency. Best practice for transparency is not only something that investment management firms need to adopt; it will also deliver tangible benefits in four main areas: sales, client relationships, outsourcing, and systems. It will also help investment management firms and TPAs to avoid issues arising with outsourcing arrangements.

Table of contents

Management Summary
1
1
 Introduction
3
1.1
 Objectives and scope of the research
4
1.2
 Definition of terms
5
1.3
 Methodology
6
2
 The Transparency Landscape
9
2.1
 What is transparency?
10
2.2
 Transparency in investment management
11
2.3
 A transparency timeline
13
2.4
 Three conclusions about the nature of transparency
17
3
 The Eight Areas of Transparency
19
3.1
 Trust, risk and transparency
20
3.2
 Where transparency needs to be delivered
22
3.3
 The cost of transparency
23
3.4
 The lack of transparency
24
3.5
 Why there is a lack of transparency
26
4
 Issues and Industry Initiatives
27
4.1
 Disclosure of fund costs
28
4.2
 Clarity of understanding
31
4.3
 Undertakings for Collective Investments in Transferable Securities (UCITS) IV
34
4.4
 Hedge fund transparency
35
4.5
 Responsible investment and governance
39
4.6
 The dangers of transparency
42
4.7
 The two dimensions of transparency
43
5
 The Client Perspective
45
5.1
 What is transparency and what is driving it?
46
5.2
 Have you asked your providers to be more transparent?
47
5.3
 Where is the impact greatest?
49
5.4
 What are the advantages and disadvantages of transparency?
50
5.5
 Have other industry participants become more transparent?
51
5.6
 Future trends
52
6
 Delivering Transparency: Current Practice
53
6.1
 The meaning of transparency
54
6.2
 Where it is important to be transparent
55
6.3
 The main drivers for transparency
58
6.4
 Delivering transparency
60
6.5
 Transparency and Outsourcing
61
6.6
 A US perspective on transparency
62
7
 A Best Practice for Transparency
65
7.1
 Why a best practice for transparency is needed
66
7.2
 Components of a transparency best practice
67
7.3
 Benefits
72

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