Mutual Funds
Unified Mutual Funds Bulletin
Mutual Fund Managers took a number of steps to comply with new provisions in 2007. These included:
- Information prospectuses for the investing public
All the fund managers began the authorization process. By the close of the year, 141 prospectuses had been authorized. The authorities announced that by the December 5 deadline to present requests for modifications, 240 applications had been received and were being analyzed; the authorities said they should be completed by the second quarter of 2008.
- Comprehensive Risk Management Manual
The CNBV announced that all the fund managers had turned in these manuals on time, and that it was currently in the process of analyzing them and forwarding its observations where it found points that needed further development.
Visits to fund managers to check on the operation and functioning of the risk areas.
The authorities said the program of visits would take more time than originally anticipated; by the end of the year they had completed four visits and another three were in process.
The CNBV said it was not necessary to request a visit, because the Commission would program them according to the fund managers' compliance with provisions on preparation of the Comprehensive Risk Management Manual. Fund managers would be advised of the visits one week in advance.
- Publication of VaR in regulatory reports.
In response to some questions that arose over the publication of VaR, the CNBV clarified that it must be reported in the Attachments starting December 5, even though the corresponding prospectus may not have been authorized.
The authorities also note that even though the information prospect may not have been authorized, the values authorized by the fund's Board of Directors should be reported, whether or not it would differ from what was authorized in the prospectus.
- Calculation of VaR
On the matter of the VaR that fund managers are required by law to state in the prospectus, there have been some problems with the figures that the fund managers were calculating, as approved by their respective Risk Committees and Boards of Directors based on the risk tolerance implied in their fund's profile, the strategy of each mutual fund, and the volatility of the market. The CNBV made its own calculation, which did not coincide with that of the Fund Managers.
The CNBV remarked that that the VaR mentioned in the prospectus should be consistent with the fund's risk rating, so the fund manager intended to raise the fund's VaR, it should notify its clients that it will be raised various times, and that the current rating may not be maintained (rating agencies are not likely to keep the fund's market risk rating unchanged if it increases its existing level of VaR).
In addition, the authorities analyzed VaR by mutual fund, which serves as a guideline and may change if the fund is going to be managed differently (using another model portfolio). The CNBV said this had not been a factor slowing the authorization process for information prospectuses.
Technical evaluation of models and methodologies used for comprehensive risk management.
Regarding the technical evaluation that the Unified Bulletin says Managers must present regarding the comprehensive risk management of the funds they manage, the authorities clarified that for fund managers that outsource their risk management, the certification must be handled by the supplier, in order to avoid unnecessary costs. But it emphasized that the fund manager must remain involved in the process, because it is responsible for the Commission and must maintain certified personnel that are familiar with the models and methodologies applied for comprehensive risk management. The authorities also remarked that the evaluations for 2007 and 2008 should be prepared by 2009.
- Publication of 1, 7, and 28-day Value at Risk as a confidence horizon
The authorities were asked to consider allowing managers to publish only the 1-day VaR as a minimum standard for all funds regardless of horizon (short, medium, and long term), since it is easier to calculate daily losses, the information is not distorted, and the figure would be comparable among all the funds and easily explained to clients.
The CNBV offered to analyze the matter, but reiterated that for the moment VaR must be published depending on each fund's horizon, as established in the Unified Mutual Funds Bulletin. These provisions are established as requisite minimums, however, so managers also have the option of publishing the one-day VaR as a reference.
- Report on materialization of Trading Risk
The CNBV was asked to consider at least a one-year extension of the deadline for fund managers to report quarterly on the possible causes and impact on the fund (maximum, minimum, and average) if one of the identified risks were to materialize. This is because fund managers do not yet have the data bases needed to generate that information. In response, the authorities said that the incidents that arise should be reported, and managers were not obliged to make any estimates if they do not have the models. It therefore considered it viable to give them a period of time to generate the information when it is not available, and further noted that levels of tolerance need not be reported.
In December, AMIB members agreed to present the CNBV's Vice President for Market Supervision with the following pending matters in early 2008: - Calculating VaR in Information Prospectuses for the Investing Public
- Comprehensive Risk Management Manuals.
- Visits to fund managers to verify operation and functioning of risk areas.
- VaR reported in Attachments to the Unified Bulletin
- Publication of 1-, 7-, and 28-day VaR in quarterly reports, as a confidence horizon.
- Technical evaluation of models and methodologies used for comprehensive risk management.
- Internal auditors' report
- Correction of excess or insufficient VaR on a same-day basis
- Report on materialization of Trading Risk. >>
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