Active managers pre-empt closet tracking inquiry

Author: Danielle Myles | Published: 2 Mar 2016

The EU’s long-overdue investigation into closet tracking is tipped to force brighter-lines between asset management strategies, and could prompt the closure of more active funds.

Results of a study by the European Securities and Markets Authority (Esma) released last month found that up to 15% of mutual funds were being passively managed, but charging active management fees.

Private sector research and warnings from national regulators suggest the practice – also known as index hugging – is more systemic, and there are calls for managers to disclose 100% of their holdings to stop what many describe as a form of mis-selling.

Whatever the outcome of Esma’s investigation, the market is already feeling the heat.

"There is a squeezed middle here. More funds and more managers are now deciding whether to go fully active and take those bets, or whether they just become pure trackers," said Adam Laird, head of passive...