2 Comments 2 Commentsby Niko Kloeten
The Financial Markets Authority recently announced another round of consultation on the issue after receiving a large amount of feedback from securities issuers and fund managers on its draft guidance note.
Pathfinder Asset Management, in a joint submission with fellow boutique manager PIE Funds, said that in its current form the guidance note would be a "financially crippling burden" for boutiques, and that the FMA should focus its attention on investment statements because these are the documents that actually get read.
"We agree that the prospectus and investment statement can in theory be accessed by the same audience. However, in our experience in relation to managed funds a copy of the prospectus is rarely (if ever) obtained or
read," the submission said.
It said there was a "complete lack of interest" from both institutional and retail investors. For example, of the documents Pathfinder has distributed for its Commodity Plus Fund, 97% have been investment statements and only 3% prospectuses.
"The reasons that prospectuses are so seldom relied on in the fund management industry are well understood. The prospectus format is complex, illogical and virtually impenetrable even to an experienced reader," the submission said.
"Attempting to bring sanity and clarity to an unstructured document (the prospectus) is a near impossible task. It is also a pointless exercise given how little it is read and relied on by investors."
"The FMA's focus should be on introducing useful information from the prospectus into the investment statement. A prospectus can often include information that is not (and in our view should be) included in the investment statement."
Pathfinder executive director John Berry told Good Returns he was pleased the FMA had responded to concerns raised in the submission process.
Niko Kloeten can be contacted at niko@goodreturns.co.nz
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One of the disappointments contained in recently registered prospectus is the disclaimers stated in the Auditors reports, contained within the prospectus. The Auditors are only allowing inclusion of their report in the Prospectus merely to meet certain statutes. They state unequivocally, we disclaim any assumption of responsibility for reliance on our report. This information is not included in the investment statement. Perhaps it should be.
Investment Statements need more attention, is the areas of quantifying the risks, expressing in simple maths terms what returns they may or may not get and performance fees, which could be charged, may be charged, may be introduced or may be rebated, it is enough to confuse and economist.
There is also a clear message coming from the High Courts. Several Directors defending their positions in New Zealand High Courts have admitted not fully reading or understanding their company prospectus. Perhaps if they had read and understood their prospectus they might not be in the High Court.
Next time you are with your colleagues, ask who has read a prospectus recently, the answer will probably sadly be along the lines of, are you having a laugh.