In the first such case in Europe, the Financial Supervisory of Norway (Finanstilsynet) has accused DnB Asset Management of charging excessive fees for investors in a fund marketed as actively managed that actually tracks an index.
The regulator says it has analyzed the performance of the Verdipapirfondet DnB Norge fund over the past five years and concluded that, despite the firm’s claims, it is not actively managed, but rather tracks its benchmark index in a case of so-called ‘closet tracking’.
‘In Finanstilsynet’s assessment the company’s management of the fund has diverged considerably from what investors were led to expect,’ the regulator says in an announcement on its website. ‘The equity fund concerned has performed very closely to its benchmark, but is marketed and priced as an actively managed fund. Finanstilsynet considers this to be censurable and counter to good business practice.’
The regulator has issued a ‘corrective order’ that requires DnB to either bring the fund’s management in line with the company’s claims or to lower the prices it charges to investors in line with other passively managed funds. It has also ordered the bank to disclose the contents of the corrective order to its clients. The fund, with 125,000 retail investors and assets of about $1 bn, has been charging annual management fees of 1.8 percent.
‘The criticism is compounded by the considerable size of the fund, the fact that it targets non-professional investors, and the fact that the fund manager has maintained an annual fixed management fee that does not stand up to the way in which the fund has in real terms been managed and marketed,’ the regulator says.
DnB’s head of communications says in an interview with the Financial Times that the company doesn’t ‘agree that the fund has not been managed actively. We believe customers have received what they paid for. We see that risk levels in the fund have been below a normal level, and we are taking measures to increase that.’
