Frequently Asked Questions

1.  An EU-derived regime called PRIIPs classified listed closed-end investment companies in the same way as open-ended funds, requiring both to disclose costs in the same way. However, listed closed-ended investment companies trade at a market price, that by definition reflects the costs/expenses of running the company, while open-ended funds are held and redeemable at net asset value (NAV), less ongoing costs and charges. What this means is that listed closed-ended investment companies effectively show the costs of running the company twice, but the investor is only charged once. This has been corrected by HM Treasury on paper documents (KIDs) but not on electronic documents that feed the data shown on investor platforms (see point 2 below).  
2. The UK's interpretation of a regulation called MiFID II also differs from the interpretation of other European countries.  It requires multi-asset managers to publish an aggregate cost of all the closed-ended investment companies they hold, even though these costs have been reflected in the share price. These costs are shown on an excel spreadsheet called the European MiFID Template (EMT), which is used to distribute information to all market participants including software vendors (providing pricing information), investor platforms and administrators. No other European country requires multi-asset managers to do this.  

1.  An abrupt decline in the ability of listed investment companies to raise primary capital, as evidenced by a lack of IPOs and rapidly declining follow-on offerings from the date of the enforcement of the guidance on cost aggregation.  
2. The London Stock Exchange is in receipt of continuous feedback from investment banking advisers and other market participants as to the reasons for the inability to obtain investor allocations for IPOs or follow-on offerings.  The disinvestment triggers illiquidity, volatility and unprecedented discounts to audited NAVs industry-wide.  
3. Anecdotal evidence suggests that multi-asset funds with no investment company holdings are getting 10 times the inflows versus those that do because of the high aggregate cost figure they have to report in the EMT and the implementation of the Consumer Duty.   

Even during the years of the pandemic, we did not see such low levels of capital raising activity. In the aftermath of the financial crisis, we witnessed a quicker recovery and sustained fundraising in this sector.  Normally, this market accounts for over a third of the primary market activity in the UK, but since June 2022 that number stands at less than 7%.  

PRIIPs will soon be replaced by the new ‘Consumer Composite Investments’ (CCI) disclosure regime. The industry is arguing that closed-ended investment companies should not be included in the new regime. 

A joint response to HM Treasury's consultation on the draft CCI, submitted on 10 January 2024 by the London Stock Exchange on behalf of industry stakeholders, presented a clear argument for the necessity of urgent reform.  The signatory list included 329 signatories, including 186 firms, many of them members of the Investment Association that invest in listed closed-ended investment companies as part of their multi-asset strategies, as well as cross-party parliamentarian supporters.   

Listed investment companies are already subject to a robust regulatory disclosure regime through a combination of company law and the various legal and regulatory requirements relating to prospectuses, financial reporting, financial promotions and the listing, transparency and other rules relevant to the market on which their shares are traded.  

As a consequence of being treated as excluded products, listed investment companies would not be required to comply with a cost disclosure regime which is misleading in the way in which it explains ‘costs’; but they would still provide the requisite transparency and detail as to their internal expenses as a result of those other legal and regulatory requirements.  

Hence our motto: Disclose, don’t double count. 

A group of industry participants have put forth new proposals for clear, transparent and fit-for-purpose disclosure for listed investment companies in the form of a ‘Statement of Operating Expenses’ (SOE).   

The proposed SOE would disclose expenses of running a listed investment company, as distinct from an open-ended fund. The SOE would surface all the appropriate expenses, taken from audited accounts, in a way that improves transparency and consumer understanding of these companies. This proposed disclosure is fully in-line with existing AIC guidance of what ongoing charges (as they are currently called) should include.  

Listed investment companies also publish regular investor updates or factsheets in which expenses are displayed in accordance with the Association of Investment Companies methodology. 

The sector is united in calling for greater levels of accurate transparency. The contention is that the aggregation of costs which are distributed market wide through the EMT, actually does the opposite and leaves the investor with less information than is desirable. Simply adding underlying and irrelevant expenses has proved to be a significant headwind to investor appetite and has led to misinformation in circulation for investors of all levels of sophistication. 

A clear legal basis exists for the Investment Association to issue (and the FCA to endorse) an immediate statement clarifying that multi-asset managers can stop aggregating the expenses of the closed-ended listed investment companies they hold, with the costs of the fund investing in them.  This basis has existed all along in the MiFID Org Regulation. For those wanting to read it, the relevant section is Article 50(2). Annex II, Table 2 of the MiFID Org Regulation, replicated in  COBS 6 Annex 7 Table 2, sets out more detail on this requirement under part (b). 

The provisions above should, in HM Government’s view, be interpreted to mean that closed-ended listed investment companies do not have ongoing costs that meet the definition to be included in costs aggregation. The ongoing expenses are not 'deducted from the value of the investment' in the same way as they are for an open-ended fund. The value of the investment is the company's share price, not the NAV of the underlying investments.    

ETFs are open-ended entities that create and cancel shares on a daily basis, with the investment redeemable at NAV. This is not the case for closed-ended listed investment companies.