ESMA Statement On Potential Closet Index Tracking

Introduction

The European Securities and Markets Authority ("ESMA") issued a statement earlier this month to inform stakeholders (including investors) about the potential for some European collective investment funds to be "closet index trackers" and to outline the work that ESMA has been doing in this area. This is unlikely to be surprising to many given the issue has been the subject of considerable attention (particularly by the media) throughout the European Union.

ESMA is focusing on what it says is the alleged practice in the European collective investment management industry where an investment fund, according to its prospectus, key investor information documents ("KIIDs") and/or marketing documentation, claims to be managed in an "active" manner while in reality the investment fund remains very close to a benchmark requiring less input from the investment manager and is therefore more akin to a "passive" fund.