Fund managers confident no scandal

The managed funds industry is confident that the market timing practices which have scandalised the savings industry in the United States have not happened in New Zealand.

Thursday, January 15th 2004, 2:36AM

It was reported yesterday that the Securities Commission was considering an investigation into the practices of New Zealand fund managers.

Investment Savings and Insurance Association chief executive Vance Arkinstall says he was "not surprised to hear" about the possible investigation, but he was confident "no illegal actions have occurred" in New Zealand.

The New Zealand fund management industry operates on a different basis to the one in the US, therefore there is less opportunity for market timing

"As a consequence of the nature of the operation of markets in New Zealand we are totally confident that these practices have not occurred in this country", Arkinstall says.

He says the commission, as regulator, has a role to make sure that investors have complete confidence in New Zealand securities markets.

"Therefore, it comes as no surprise that the commission have foreshadowed they may make enquiries."

He says similar investigations are being carried out across the Tasman by the Australian Securities and Investment Commission.

"The funds management industry stands ready to assist the Securities Commission. It is in the best interests of all that we remove any shadow of doubt that may result from unacceptable practices in other parts of the world", Arkinstall says.

While it is unlikely that market timing has occurred in New Zealand investors can still be impacted by what has happened in the United States.

Morningstar chief executive Scott Cooley says some managers still use "backward pricing, which is susceptible to market timing."

However the research house isn’t aware of "any specific cases in which local investors’ unitholdings would have been affected by stale unit price arbitraging."

Likewise local managers tend to use buy/sell spreads that reduce the arbitrage opportunities.

There is a possibility that local investor could indirectly be impacted by the scandal.

"Many local fund managers have chosen to outsource portfolio management of their international products to large, US-based firms such as Putnam, Fidelity, and Capital International."
A number of these firms have been caught up in the scandal.

To find out what the market timing scandal is all about and the different ways it works read our feature from Morningstar US Fund Scandals: What's it all about?
Part Two of this feature examines the implications of the scandal for Australian and New Zealand investors.

Click here to read the feature

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