Senate to investigate closed investment funds amid declining value
By The Star Staff
Senate President José Luis Dalmau Santiago requested an investigation Thursday into the closed investment funds’ administration, operation and performance because of their alleged value deterioration impacting senior citizens.
Investment firms market such closed-end funds exclusively to residents of Puerto Rico. They are known as the Tax-Free Fixed Income Fund series and are purchased mostly by older adults.
Senate Resolution 796 directs the Senate Committee on Economic Development, Essential Services, and Consumer Affairs to conduct a thorough investigation, analysis and presentation of recommendations.
“In the last decade, we have witnessed a marked decrease in the resources available in [closed] investment funds due to the degradation of the public debt, the bankruptcy of the Government of Puerto Rico, and the alleged implementation of unwise strategies by managers in the entities in charge of managing these funds,” the measure states. “These directors have contributed to the deterioration of the value of the investments and a reduction in the rate of return of the funds, which has generated great concern, especially for investors composed mainly of older people and retirees, who depend on the yields of these investments for their livelihood.”
The Senate said it recognizes the importance of investigating the transparency, prudence, and effectiveness of the investment strategies adopted by the administrators of the closed funds that the investment firms market exclusively for residents of Puerto Rico, notably the Tax-Free Fixed Income Fund series, which were valued at $1 billion.
“It is critical to address the risk that declining principal and returns on these investments pose to the economic stability of thousands of retirees who depend on them,” the bill says.
Dalmau Santiago emphasized the need to guarantee the protection of the interests of retirees and ensure a complete investigation that allows identifying failures and proposing practical solutions to safeguard the resources and income of the investors involved. The objective of the legislation is to establish the necessary measures to strengthen the administration of the funds in question and provide security to the people who may be affected, he said.
In 2018, a federal law regulating mutual funds in the United States eliminated an exception that allowed Puerto Rico to manage investment funds without complying with Securities and Exchange Commission (SEC) rules. The measure forced 30 investment funds managed by companies that operate only for residents of Puerto Rico to register and operate under SEC rules as of May 2021, providing better protection to investors. The Office of the Commissioner of Financial Institutions is the government agency in charge of supervising and regulating the financial industry in Puerto Rico, including the aforementioned investment funds.