IMA: Arch Cru sector classification based on ‘assurances’

The Investment Management Association classified the Arch Cru funds as ‘Cautious Managed’ based on “assurances” from the fund manager and administrator as the association was not permitted to review the underlying assets, chief executive Richard Saunders has said.

In an interview with FTAdviser, to be published later today, Mr Saunders said that in line with its usual procedure the IMA was approached by the administrators of the funds with a request that they be placed in the Cautious Managed sector. Mr Saunders said the IMA evaluated the underlying assets of the fund, saw they were compliant with the rules for the sector and thus gave it the requested classification.

Mr Saunders said the underlying assets of the funds subsequently changed when the Guernsey investment trusts appeared and that the IMA was not able to re-examine the underlying contents of the funds.

He said: “Later on the asset allocation shifted and the Guernsey investment trusts appeared. At that point we started asking questions and they said, ‘we can’t tell you but we give you our assurance that they are compliant’, and it turns out that assurance was incorrect.”

Robert Addison, partner at Arch, confirmed that it had not disclosed information to the IMA, saying insider trading laws meant they could not have selectively disclosed some aspects of the funds to the IMA without making that information freely available to everyone.

Mr Addison also claimed the underlying assets of the funds never strayed from the rules-based requirements of the Cautious Managed sector, in line with assurances provided to the IMA.

He said: “It is very difficult to decide what we can tell people and what we can’t tell people so we took the decision not to reveal any of the assets.

“The IMA could see that they were holding bonds and equities, they just wouldn’t know the name of the bond or the bond issuer.

“The man on the street doesn’t think of cautious managed as rules-based, they think of it as protecting their investment.”

Mr Saunders maintains that a similar situation is unlikely to arise again.

He said: “The chances of it happening again are much reduced. The experience of Arch Cru will make it quite unlikely that we will see this again in the future.

“We will clearly be asking the same questions and be pressing hard and also of course the rules have changed. You have to be in assets that comply with the Ucits rules, which these things as I understand it did not.”

He added: “Being in the sector means you meet those requirements and nothing more, that’s all it means and IFAs making recommendations to their clients should realise that.”