Alternative Investment Fund Designation Bill [HL]

Of course, all charges must be disclosed, and indeed they are, but the regulator and government officials seem not to realise that the way investors are given information is misleading them, and creating selling pressure and starving of capital. This is an important part of the UK financial markets, which have always been a success story for the UK. It is undermining and creating existential damage to the very sector that the regulator is responsible for looking after. The investor needs to know what costs are, as any share investor needs to know what costs the company it is investing in incurs, but they also need to know the premium or discount, not just whether their management fee is cheaper or more expensive than an open-ended company, which directly deducts those management fees from the investor holding.

It is globally recognised—apart from here, it seems—that, as an uncontroversial foundational principle of public market valuations, the investor’s value is the share price. The current regulatory interpretation of EU-derived legislation, as transposed into UK law by the FCA, directly contradicts this. The FCA also incorrectly claimed to the Treasury Select Committee that other countries disclose management expenses as we do, entering values for so-called “ongoing charges figures” in the industry-standard data fees, presented for investors to rely on when seeking to inform themselves or when retail platforms inform them of relevant information they need to know. The FCA seems not to know how the EMT actually works.

This is why such legislation is important, and perhaps explains why, so far, the situation has been allowed to continue. The other countries entering so-called consumer costs for their investment companies are not entering the figures as we are; it is simply not the case. I urge my noble friend to urge the FCA to inform itself properly before further damage occurs.

Really, it just will not do, and it will not do because the people being hurt are retail consumers owning shares. Mainstream ex 3i discount to NAV is now at minus 15% compared to minus 4% in January 2022. That is way out of line with anything that has happened through crises, or when there have been comparable interest rates to now. Retails consumers owning half of listed investment company shares have suffered a value decline against NAV of £22 billion since the misleading disclosure format started. Another year or more of this retail consumer harm could be avoided, even just by selectively advancing the MiFID proposal contained in the Bill—recognising the truth that, with listed shares, value owned is share value. Let expense ratios be disclosed in their true light, not deceptively described as a deduction from holdings.