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"Portfolio managers earn at most management fees of 1% a year on their portfolios. The motives for managing a unit trust with assets of only R50m are t..."
The Registrar of Collective Investments (unit trusts) is investigating the economic viability of unit trusts with less than R100m under management.
Pat Ward, the head of collective investments at the Financial Services Board (FSB), said there are 960 unit trusts at present, 50% of which had less than R100m of assets under management.
In contrast the largest portfolio management company in terms of assets per portfolio at the end of December was managing 37 portfolios, each with average assets of R2.03bn. The five smallest managers together managed 191 portfolios, which at the end of December last year had assets totalling R318m.
Ward said this essentially gave rise to questions about the viability and objectives of these trusts.
Portfolio managers earn at most management fees of 1% a year on their portfolios. The motives for managing a unit trust with assets of only R50m are therefore questionable. The annual management fee for such a trust would be R500 000.
Investors in some of the smaller unit trusts have burnt their fingers because these unit trusts have found a way to circumvent FSB regulations.
The investigation into the viability of smaller unit trusts is a corollary of the registrar's investigation into third-party trusts.
Third-party trusts are unit trusts that are sold or managed by an entity that has no licence to administer a unit trust, but uses a portfolio management company that does have an appropriate licence.
Among the current 960 unit trusts, 300 are third-party trusts. One portfolio management company manages just over 50% of these third-party trusts.
Until the investigation into third-party trusts is finalised, no new third-party trusts are being registered.
Ward said other unit trusts were still being registered and the FSB did understand that no unit trust could manage billions from the outset.
Of the smaller unit trusts, 20% had not managed over the years to accumulate more than R50m in assets.
Apart from this, the registrar and the unit trust industry agree that there are currently too many unit trusts, causing confusion for individual investors wanting to select one.
Ward emphasised that the FSB would not be reckless and shut down all small unit trusts, though some would possibly have to alter their mandates or merge with others.
Pat Ward, the head of collective investments at the Financial Services Board (FSB), said there are 960 unit trusts at present, 50% of which had less than R100m of assets under management.
In contrast the largest portfolio management company in terms of assets per portfolio at the end of December was managing 37 portfolios, each with average assets of R2.03bn. The five smallest managers together managed 191 portfolios, which at the end of December last year had assets totalling R318m.
Ward said this essentially gave rise to questions about the viability and objectives of these trusts.
Portfolio managers earn at most management fees of 1% a year on their portfolios. The motives for managing a unit trust with assets of only R50m are therefore questionable. The annual management fee for such a trust would be R500 000.
Investors in some of the smaller unit trusts have burnt their fingers because these unit trusts have found a way to circumvent FSB regulations.
The investigation into the viability of smaller unit trusts is a corollary of the registrar's investigation into third-party trusts.
Third-party trusts are unit trusts that are sold or managed by an entity that has no licence to administer a unit trust, but uses a portfolio management company that does have an appropriate licence.
Among the current 960 unit trusts, 300 are third-party trusts. One portfolio management company manages just over 50% of these third-party trusts.
Until the investigation into third-party trusts is finalised, no new third-party trusts are being registered.
Ward said other unit trusts were still being registered and the FSB did understand that no unit trust could manage billions from the outset.
Of the smaller unit trusts, 20% had not managed over the years to accumulate more than R50m in assets.
Apart from this, the registrar and the unit trust industry agree that there are currently too many unit trusts, causing confusion for individual investors wanting to select one.
Ward emphasised that the FSB would not be reckless and shut down all small unit trusts, though some would possibly have to alter their mandates or merge with others.
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