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Baillie Gifford highlights misleading disclosures on investment trust KIDs


Baillie Gifford, an Edinburgh based investment management partnership, believes there are serious flaws in the detailed design of the disclosures within the new investment trust Key Information Documents (KIDs) required under the Packaged Retail and Insurance-based Investment Products (PRIIPs) Regulation.

These relate to scenarios illustrating the potential return to shareholders under certain market conditions. They are simply based on past performance and could lead to investors receiving poor information at the point of sale which is potentially misleading.
Graham Laybourn, Partner responsible for Compliance and Legal in the firm, says: “We always look to implement our regulatory obligations in a thoughtful and responsible manner, but it is unsatisfactory that with the latest PRIIPs key information document we have had to comply with the strict requirements of the new rules, notwithstanding that some of the outcomes produced are inappropriate. I would struggle to suggest that these new disclosures meet the clear, fair and not misleading test.”
“Such is the concern of this new KID disclosure, we have seen the Independent Boards of a number of our investment trust clients writing directly to the FCA. We fully support the views expressed by our investment trust directors that these mandated performance scenarios have the potential to set unreasonable expectations when being read by our retail investors.”
James Anderson, manager of the sector’s biggest investment trust, the GBP6.5 billion Scottish Mortgage, adds “We are extremely disturbed by the requirements of the Key Information Document. We do not believe that reliance on past performance data is ever a sufficient guide to the many possible future outcomes in stocks and markets. The persistent and steady rises characteristic of the last five years seem especially questionable as a guide. We consider the most important risks in markets to be intrinsically unpredictable and unmeasurable. We would also highlight that the emphasis on the short-run demanded in the KID, seems to us to be acutely misguided. We continue to stress to retail shareholders that we focus, as we believe they do, on building capital in the long-term. We believe that an undue preoccupation with short-term volatility undermines this commitment – and indeed the ultimate purpose of financial markets’.     

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