Review of asset management structures

The Investment Management Association (IMA) said yesterday the rise of non-traditional forms of investment, such as short selling, challenges the existing system in which funds are categorised according to the assets in which they invest.

Fund managers are assessed according to their performance relative to peers in the same IMA sector, so a reorganisation of the categories could significantly alter the way individual funds are rated, and ultimately, sold.

"We think now is a good time to review IMA sectors," the IMA's director of markets, Jane Lowe, said in a statement.

"Fund managers have gained wider investment powers through changes in legislation and we are seeing the launch of new funds, which are characterised by their investment strategy, such as absolute return, rather than the assets they hold."

Much of the diversification in asset management style stems from the development of European directives that allowed funds to make more use of alternatives like derivatives and use a greater variety of methods such as short selling.

The existing system is also challenged by the emergence of new investment objectives such as the pursuit of absolute return, as opposed to a return relative to a benchmark.

According to data from Lipper, absolute return funds accounted for 6.5 per cent of all fund launches between January and May this year, up from 4 per cent in all of 2008.

Fund management has also seen the rise of lifestyle investing, where funds are defined according to risk.

In response, the IMA will ask member firms, fund managers and investment advisers whether funds that use derivatives or adopt new strategies should continue to be rated in the same categories as traditional funds.

Anglo-Australian fund group Henderson in April announced a shake-up of its fund range which in part conferred greater powers on the managers of certain funds, including allowing shorting for the first time on more than 1bn of bond portfolios.

Among the proposals respondents will be asked to consider are the creation of new sectors, new forms of classification according to risk or making it easier to identify non-traditional funds within existing sectors.

The IMA expects the review to last well into next year and possibly beyond.