Mutual fund Administration

It refers to the administrative and operational management of the fund, in order to ensure compliance with regulations, adequate management of associated risks and investor protection. 

The collective investment fund managing society has the power to hire third parties to carry out the activities of management and distribution of the funds, and must ensure that the custody of the fund's securities is carried out by authorised entities in order to guarantee their protection (Article 3.1.3.1.1. Decree 2555 of 2010).

The collective investment fund managing society is liable, even in cases of slight fault, for the diligent performance of its duties (Article 3.1.3.1.2. Decree 2555 of 2010). 

The collective investment fund managing society is obliged to dedicate itself exclusively to the interests of investors, the proper delivery of the securities to an authorized custodian, and the safeguarding of patrimonial rights over assets other than securities. It must also identify, measure and manage the risks associated with the administration of the funds, as well as carry out the valuation of the portfolio and its holdings in accordance with current regulations (Article 3.1.3.1.3. Decree 2555 of 2010). 

In addition, the use of funds for illicit activities or tax evasion must be prevented, internal control manuals must be in place, and discriminatory practices among investors must be avoided. Management must also manage conflicts of interest and comply with procedures established by the Board of Directors. Finally, staff supervision and timely reporting on the management of the fund are crucial, and the administrator must be held accountable for diligence in selecting and monitoring the external manager and custodian. 

Mutual fund portfolio management

FIC's portfolio management activity encompasses several key responsibilities, including making investment and divestment decisions, as well as identifying, measuring and managing risks associated with the portfolio. This management can be carried out directly by the collective investment fund managing society or delegated to an external or foreign manager, in which case it must ensure that the manager meets the requirements of experience, suitability and solvency (Article 3.1.3.2.1. Decree 2555 of 2010 ). 

The hiring of an external manager does not relieve the collective investment fund managing society of its liability to investors. 

The portfolio manager must comply with various obligations (Article 3.1.3.2.4. Decree 2555 of 2010), such as having an adequate infrastructure for management, executing the investment policy in accordance with the fund's regulations and observing the instructions of the investment committee. In addition, it must identify and manage portfolio risks, maintain internal control policies, and avoid conflicts of interest.

It is essential that the manager maintains full transparency, ensures the existence of assets valid for investment, and provides regular reports to the collective investment fund managing society and SFC. It must also take measures to prevent insider trading and prevent market abuse. The manager's responsibility is one of means, not of result, which means that he must execute the investment policy appropriately, but he cannot guarantee fixed returns or specific results. 

Distribution of funds

The distribution of FICs is a crucial activity to attract investors and promote the funds. Only management companies and specialized distributors are authorized to carry out this task (Article 3.1.4.1.1. Decree 2555 of 2010).

Distribution may be carried out directly through the sales force of the collective investment fund managing society or the specialized distributor, through a network use contract, or through a correspondent contract, in which case only the services established in the decree can be provided (Article 3.1.4.1.2. Decree 2555 of 2010). 

The duty of advice is fundamental in distribution. Distributors must offer professional recommendations both at the time of joining the fund and during the investor's stay. This advice should be provided proactively or at the investor's request and should address any circumstances that may significantly affect the investment (Article 3.1.4.1.3. Decree 2555 of 2010). 

The distributor has multiple essential responsibilities to ensure efficient and compliant distribution (Article 3.1.4.1.4. Decree 2555 of 2010). First, it must identify, control, and manage situations that generate conflicts of interest that may arise during portfolio distribution, following the applicable rules and the guidelines of the Board of Directors. It is also your responsibility to ensure that the staff complies with the obligations established in the rules of corporate governance, conduct and procedures described in the manuals. 

In addition, the distributor must immediately inform the SFC about any fact or situation that prevents the proper performance of its functions. In terms of risk management, the distributor has an obligation to develop and maintain appropriate systems to identify, measure, manage and control the risks associated with the distribution of funds. It must also adopt control measures to prevent distributed mutual funds from being used as instruments for illicit activities, tax evasion, or to give the appearance of legality to illegal activities and transactions.

Distribution of funds via omnibus accounts

Specialized distribution can be carried out through omnibus accounts, which are managed by specialized distributors or by fund management companies other than that of the specific fund (Article 3.1.4.2.1. Decree 2555 of 2010).  

These accounts bundle the investments of multiple investors under a single account, allowing the dealer to act on their own behalf and on behalf of individual investors. Each specialized distributor can manage multiple omnibus accounts for different funds, ensuring that these accounts do not include other omnibus accounts as investors. The identity of the final investors will only be known by the distributor, however, the authorities will be able to know it (Article 3.1.4.2.2. Decree 2555 of 2010).

In addition to general distribution obligations, specialty dealers must meet specific requirements when handling omnibus accounts (Article 3.1.4.2.3. Decree 2555 of 2010). These include: 

• Act in its own name and on behalf of investors. 
• Obtain prior written authorization from investors for inclusion in an omnibus account.
• Inform investors about the risks and operation of the omnibus account.
• Keep information on investors' holdings up to date.
• Allow investors to exercise their political rights through the specialized distributor.
• Make investments or divestments as directed by investors.
• Have an operating regulation approved by the SFC.

Keep a separate record of each omnibus account in accordance with the established rules.