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Keeping Secrets Down Under

Australia's regulator wants funds to be more transparent about what they invest in. Fund managers don't like it...

AUSTRALIANS are assured that their country's banks have "not very much" exposure to European government debt. But the harder you look, the less you actually know, writes Dan Denning, editor of the Daily Reckoning Australia.

This also seems to be the conclusion of Australia's regulator, the Australian Securities and Investments Commission. 

"The corporate regulator is pushing superannuation funds and managed investment schemes to publish the securities and debt instruments they invest in, as part of a campaign to improve transparency in the $1.8 trillion funds management industry," reports Bianca Hartge-Hazelman in Monday's Australian Financial Review.

As the law stands now, Aussie funds don't have to show the general public what they're investing in at any given moment. Information on specific fund allocations and assets is sometimes available to fund members once a year, in the annual report. And as we've discovered, the funds often outsource the active management of your money to asset managers. Those managers don't give a lot of information about what they're doing with people's money either.

The reaction of the funds industry to ASIC's suggestion has been almost comical. "Investment managers warn the task of providing information on underlying holdings of securities would be an administrative nightmare, leading to higher fees for investors, and it could have also have a negative effect on sharemarkets."

Translation: "Dear Investor, yes, we can do it. But it's going to cost you. And it will probably be bad. Go away. Also, please shut up."

"We do not see any evidence of investors clamoring for investment holding disclosure," says Joe Brennan, the chief investment officer of Vanguard Asia Pacific. 

He's probably right. People won't start asking to know what's in their funds until their funds report losing money on investments no-one knew they had, like European and American government bonds. By then it will be too late to do anything about it, of course.

Brennan worries that funds might lose their competitive advantage if forced to tell the public what they're actually buying with your money. Maybe. But maybe the public would find out that the funds are all thinking and doing pretty much the same thing: buying the same 10 large Aussie blue-chip stocks, government bonds, and anything correlated to China and commodities.

We're just speculating here. But if Aussie funds were forced to disclose how they're investing your money we'd probably find out a simple answer: as lazily and unimaginatively as possible. That's what they probably don't want us to find out.

Disclosure of fund holdings would make fund managers accountable to Australian investors. And that would be the end of a great racket where fund managers don't have to work to get investors' money (it's compulsory) and they don't have to tell them what they're doing with it. Not a bad gig, eh? No wonder they're resisting it.

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Best-selling author of The Bull Hunter (Wiley & Sons) and formerly analyzing equities and publishing investment ideas from Baltimore, Paris, London and then Melbourne, Dan Denning is now co-author of The Bill Bonner Letter from Bonner & Partners.

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Please Note: All articles published here are to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please review our Terms & Conditions for accessing Gold News.

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