AN INVESTOR in some of Scottish Widows’ investment funds has been engaging in the questionable trading practice known as market timing, according to industry sources.
Pentagon Capital Management, a London-based hedge fund, allegedly engaged in the practice about a year ago as it made deals in some of the Edinburgh life assurer’s OEICs, the insiders have claimed.
The process is based on institutions buying and selling funds after the market has closed, responding to news that is likely to affect their price when trade re-opens. The practice takes advantage of the fact that funds are only priced once per day.
Although market timing is not illegal, it can reduce gains for long-term investors. Investment firms are obliged to have sufficient measures in place to know if their funds have been subject to the practice.
A major investigation into the practice in the US has drawn in about two dozen companies, and has uncovered evidence of collusion between fund managers and investors.
Scottish Widows said it is “sometimes approached by institutional investors looking to place large investments (or a series of investments) in our OEICs.
“We transact this business in accordance with the terms and restrictions of the scheme documentation and FSA rules.”
A spokesman for Pentagon said that it “recently commissioned a voluntary, independent review of [our] trading activities.
“The results… were sent to the FSA as a matter of course.”
