German regulator to investigate 'closet index funds'

FRANKFURT/LONDON (Reuters) - Germany's markets regulator said on Monday it would investigate whether asset managers mislead investors by selling actively managed funds which then tracked a benchmark index too closely.

BaFin's decision to probe whether fund firms were marketing so-called 'closet index funds' comes shortly after Europe's financial markets regulator said up to a sixth of retail-focused equity funds could be guilty of the practise.

Using the European Securities and Markets Authority (ESMA) study as a starting point, BaFin said it would collect data from a number of managers before doing a deeper assessment on those funds which looked like they could be closet indexers.

It follows similar moves by regulators in countries including the UK, Denmark, Sweden and Norway.

ESMA has said it is considering what action to take next and has so-far opted not to disclose the names of the funds concerned.

(Reporting by Jonathan Gould and Simon Jessop; Editing by Alexander Smith)