Offshore Funds: Time To Open Up
Mutual-fund mania is sweeping the world. While American investors are well-known for their appetite for funds, Europeans, Asians, and other investors around the globe are piling into the $1 trillion offshore mutual-fund business. Offshore funds have thrived by selling investments to well-heeled professionals who like the tax shelters that such money-management centers as the Channel Islands, Luxembourg, Bermuda, and Hong Kong can provide. Although many of these funds are run by big U.S. banks and brokers, they can't be sold in America because their sponsors choose not to register them with the Securities & Exchange Commission.
That's the problem. A world apart from the intense competition of the U.S. market and operating without SEC or any other regulatory oversight, many offshore funds are content to charge onerous fees and provide little in the way of meaningful disclosure to their customers. Last summer's costly fund-management scandals at Jardine Fleming Securities in Hong Kong and Deutsche Morgan Grenfell in London might have been caught earlier if local regulators had been obliged to publicly disclose more about their trading. Fortunately, however, things are starting to improve. Regulators in Luxembourg and Ireland are pressing for better disclosure. And BUSINESS WEEK's Offshore Fund Scoreboard, containing a wealth of detail about the 500 largest funds' performance, holdings, and fees, will also help investors determine what makes funds tick. But even among those surveyed by BUSINESS WEEK, too many of the 500 disclose too little. If managers want their funds to prosper and grow along the lines of their counterparts in the U.S., they'd better wise up and open the books fast.