SEC investigates fund manager with NPRF link

The US stock market regulator is investigating one of the companies in a fund management group that is responsible for almost €280 million of Ireland's National Pension Reserve Fund (NPRF).

The Securities and Exchange Commission (SEC) is investigating Los Angeles-based Capital Research and Management. It is understood that the commission suspects the fund manager made deals with stockbroking firms that created a conflict with its own investors' interests.

Capital Research and Management is part of the Capital Group, whose international arm, Capital International, manages €278 million of the NPRF. The National Treasury Management Agency (NTMA) chose the Capital Group as one of its fund managers when it was set up over two years ago.

The Government places a figure equal to 1 per cent of gross national product in the pension reserve fund every year. The fund stood at €9.5 billion at the end of 2005.

A spokesman for the NTMA said yesterday that the agency knew about the investigation. "We are aware of it, and we are monitoring the situation," he said.

He added that while the agency was concerned, the inquiry involved a different company within the same group to the one managing the pension fund's assets.

Capital Research and Management manages a $450 billion group of mutual investments known as the American Funds. According to reports in the New York Times, the SEC is concerned that Capital Research may have been deliberately directing securities trades and commissions to brokers that sell its funds.

Mutual funds are obliged to use the best and most efficient brokers for trading. Also, the commissions paid to brokers belong to the funds' investors.

Thus, if fund managers are directing trades to brokers who are also working to attract new investors and consequently extra management fees to the fund, this means that the managers are putting their interests over those of the investors.

Capital Group is an active investor in this State, and has stakes in a number of publicly listed companies, including Irish Life & Permanent, CRH, AIB and Bank of Ireland.