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Law360, London (July 2, 2021, 11:14 AM BST ) An investors' group has said it will reinstate rules that require equity funds in Britain to deliver a minimum amount of returns for savers, after suspending the requirement amid the COVID-19 pandemic.
The Investment Association, which represents 250 investment managers holding £8.5 trillion ($11.7 trillion) for savers, has said that, from Sept. 24, it will re-introduce the so-called yield tests it imposes on equity funds. The tests oblige funds to deliver a fixed amount of returns for savers every year.
The trade group suspended the requirements in 2020 to allow funds to deal with the economic fallout of the COVID-19 crisis.
"The measures introduced last year helped prevent unnecessary disruption to the equity income sectors," Jonathan Lipkin, director of policy, strategy and research at the Investment Association, said on Thursday.
"As the pandemic eases, and markets have settled, it is right to re-establish the yield test so savers can be assured that the funds in the equity income sectors are meeting the income thresholds set out in the sector definitions," he added.
The group said it decided to pause the yield requirements in 2020 to allow fund managers to "focus on long-term outcomes for savers" rather than "potentially making immediate changes to meet sector requirements."
The Investment Association said it is tweaking its three-year yield rules to take account of lower returns during the pandemic.
Each fund will have the opportunity to exclude one accounting year from the three-year test, either the year ending in 2020 or 2021, the association said. Each fund will have only one chance to exclude a year from their three-year average.
The yield tests are intended to make sure that funds provide investors with a regular income based on the dividend payments from the companies the fund is invested in, the IA said. The tests ensure that all funds focus on generating income without being too inflexible or prescriptive, the trade group added.
"The funds are required to meet a yield hurdle over one and three years in order to remain in the equity income sectors in recognition of the importance of the income objective to investors," the IA said.
The COVID-19 pandemic hit the retail investment sector particularly hard. The Investment Association said in May that British retail investment funds were hit by a record net £10 billion drain of money in March as investors reacted to the lockdown measures associated with the outbreak.
Chris Cummings, chief executive of the Investment Association, said at the time that this represented the fastest switch to a bear market — one experiencing prolonged price slumps — in history.
But the trade group said on Thursday that equity markets are returning to normal as Britain emerges from the pandemic.
"The overall mood remains positive as we head into the summer," Cummings said on Thursday. "In response to European stocks performing well, U.K. savers invested £101 million into Europe funds."
Investors placed a total of £3.5 billion into funds in May 2021, the trade group said.
--Editing by Ed Harris.
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