The annual general meeting and annual report of investment funds : a critical analysis of their value to investors

Abstract

This study analyses the value of the Annual Report (AR) and the Annual General Meeting (AGM) of investment funds from the perspective of the fund managers (providers of information) and the institutional and retail investors (users of information), with regards to their relevance to investment decision-making. Research was carried out using online questionnaires distributed to fund managers of Malta based UCITSs and non-UCITS retail CISs and retail investors, mainly members within the Malta Association of Small Investors. Additionally, semi-structured interviews were conducted with three main institutional investors. Findings show that the Annual Report has lost value as it has become more complex weighed down with voluminous boilerplate disclosures, as providers of financial information are driven more by regulatory compliance than providing shareholders with information relevance and value to support their investment decisions. Institutional investors have the resources to deal with the complexity of the AR. They actually seek more information through one-to-one meetings with fund companies and so are better prepared for the AGM. Retail investors who are qualified in financial disciplines at University level can derive value from the AR but do not have the resources for in-depth analysis on the scale and intensity undertaken by institutional investors. Other retail investors who lack qualifications in financial disciplines are not favourably placed to derive value from the complex and voluminous AR, so they have to turn to financial advisors for guidance. To bridge this information and communication gap between the fund and the retail investors, the following recommendations are made. The unaudited profit and loss account and balance sheet are issued on a quarterly basis, accompanied by a fund manager and a custodian quarterly report. These are issued outside the complexities of compliance rules and presented in more understandable terms. Simultaneously a set of Key Performance Indicators (KPIs) are also published to give more transparency to the fund’s performance. Finally it is also recommended that a simplified version of the AR aimed at the retail investors is published together with the formal full version of the AR.