Tim Mortimer, managing director at Future Value Consultants, explains how the requirement for asset managers to display future performance simulations on their fund literature under PRIIPs regulations has created problems.
The type of simulations represented by the resampling technique has suffered a blow to its credibility after the events of the last month, though it remains to be seen what gets finally agreed.
It is obvious that there can at times be a wide variation between historical performance and future simulations. In particular, for the case where historical performance looks worse than the simulation it may be dangerous to show the simulation because it does not highlight risks enough.
In conclusion, I do not think that the differences represented by past performance and simulated results have been fully appreciated by the EC.
To suddenly require the display of future simulations projections in an investment world used to showing past performance was by regulatory standards rushed through and urgently needs a major rethink in order to make sure that investors receive accurate and meaningful information that they can safely interpret.
