The European Securities and Markets Authority (“ESMA”) recently issued a “Questions and Answers” paper on the UCITS Key Investor Information Document (“KIID”). The objective of this guidance paper is to promote common supervisory approaches and practices in the application of the UCITS Directive (and implementing measures) by providing responses to questions posed by the general public and competent authorities.
The answers are intended to provide clarity as to the content of the UCITS rules rather than creating an extra layer of requirements.
Question 1: Preparation of KIID by UCITS that are no longer marketed to the public or by UCITS in liquidation
- Even if a UCITS is no longer marketed to the public, an up-to-date version of the KIID should be made available to the existing investors1.
- When a UCITS is in liquidation, there can be no obligation to prepare a KIID as the liquidator may have assumed many of the powers of the UCITS management company.
- A structured UCITS2 that is no longer marketed to the public must still keep its KIID up to date.
Question 2: Communication of KIID to investors
- Existing investors should be provided with a KIID in the case of additional investments, on the basis that the KIID is a pre-contractual document and each additional subscription is a new contract3.
- Where unit holders in a UCITS invest through a regular savings plan, a KIID is not required unless a change is made to the subscription arrangements, for example, increases or decreases in the subscription amount.
- When investors switch or exchange units in one sub-fund for units in another subfund within the same UCITS umbrella fund, they must receive the KIID for the sub-fund they are going into.
- An amended KIID does not need to be provided to existing investors unless they are making additional subscriptions. However, investors always have the right to be provided with the KIID on request
- All prospective investors, including professional investors, must be provided with a KIID.
Question 3: Treatment of UCITS with share or unit classes
- Information relevant to two or more share classes may be combined into a single KIID, provided the resulting KIID complies in full with all KIID requirements (including the limit on length).
- A UCITS may select a class to represent one or more other classes of the UCITS provided the information in the KIID is fair, clear and not misleading to prospective investors in those other classes.
- Where charging structures differ between classes, the share class with the highest overall charge is the most appropriate representative share class to avoid the risk of understating charges. It is the responsibility of the UCITS to select the most appropriate representative share class.
Question 4: Past Performance
- When a UCITS does not have performance data for one complete calendar year (and is not a UCITS which may provide simulated data for past performance), a statement that there is insufficient data to provide a useful indication of past performance should be included in the KIID. There is no need to accompany that statement with a blank performance chart4.
- Where a UCITS refers to an index in its investment objectives and policies as a benchmark and will measure the performance against this but does not intend to track that index, a bar showing the performance of the benchmark index must be included in the bar chart alongside each bar showing the UCITS past performance5. It should be made clear in the past performance section of the KIID that the performance is not tracking the index.
- Where the index is not intended to be used to measure the fund’s performance and instead is only mentioned for the purpose of describing the universe from which investments may be selected, it is not necessary to show the performance of the index in the past performance section of the KIID.
- When there is no data available for a particular year, the year shall be shown as blank in the bar chart for years, with no annotation other than the date6.
- Where a material change occurs to a UCITS’ objectives and investment policy during the period displayed in the bar chart, the UCITS’ past performance prior to that material change shall continue to be shown. Therefore, if the benchmark is modified, the bar chart should display the performance of the previous benchmark for the period preceding the change. A statement indicating this change should also be included in the past performance section7.
- Past performance figures shall be calculated on the basis that any distributable income of the fund has been reinvested. Where available, the performance of the benchmark with reinvestment of revenues should be used in the bar chart alongside the UCITS’ past performance. Where such a benchmark is not available, an appropriate disclosure highlighting that the benchmark does not take into account the reinvestment of revenues should be included in the KIID.
Question 5: Clear Language
- It is possible to signpost to a glossary in a KIID but the use of a glossary should not result in too numerous cross-references.
- Terms such as “the Fund” may be used in the KIID, once the full name of the fund has been already mentioned. A similar approach can be taken for share classes of funds with a reference to “the share class of the fund” in the KIID.
Question 6: Identification of the UCITS
- Only the name of the UCITS management company of the UCITS should be disclosed in the KIID, not the investment manager(s).