RIYADH: Saudi Arabia’s investment funds would need to disclose more details on payouts, holdings and property revenues under proposals aimed at improving transparency across the sector.
The Capital Market Authority is considering requiring funds to explain the sources of cash distributions, including income from investments and capital gains realized through asset sales.
Quarterly statements would detail funds’ 10 largest investments, identifying asset types, counterparties and each holding’s share of net assets.
The proposals follow expansion in the sector, with fund assets reaching SR1 trillion ($265.7 billion) at the end of June, up 28.2 percent year on year, while the number of funds increased 29.6 percent to 2,249.
In September, the authority introduced guidance with five risk classifications, ranging from low to high, to support clearer comparisons.
Aseel Al-Aranki, head of financial market analysis at CG Invest, told Arab News that identifying where distributions come from would be the most important change for investors assessing whether payouts can be sustained.
“Income from rents, dividends and profit distributions recurs for as long as the underlying assets perform. A gain from selling an asset happens once,” she said.
Al-Aranki said separating these sources would help investors distinguish income generated by a portfolio from payouts supported by disposals, making managers more accountable for how distributions are funded.
Closer scrutiny
Under the proposals, real estate funds would disclose individual property revenues and their ratio to net assets, alongside a sector breakdown.
The draft also includes reporting remaining lease durations and their weighted average, where applicable.
Annual reports would contain analysis comparing performance with benchmarks, explaining the factors behind results and setting out expectations. Public funds’ reports would also include risk assessments.
Al-Aranki said holdings disclosures could reveal concentration risk and whether a portfolio matched its stated strategy.
However, benchmark outperformance alone would not establish whether distributions were covered by portfolio earnings.
Conflict-of-interest reporting would identify the parties involved, potential effects and measures taken to address them.
Managers would acknowledge that they had disclosed all conflicts and followed procedures for handling them.
Making information useful
Al-Aranki recommended standardized tables separating distributions per unit into recurring income, realized gains and any return of capital, using consistent definitions.
“If every manager chooses its own categories, much of the benefit disappears,” she said.
She also called for disclosures showing how far income covered payouts, supported by plain-language summaries for retail investors.
The proposed amendments would make the Saudi Exchange’s website the mandatory primary disclosure channel, while permitting publication elsewhere.
Consultation closes on Nov. 17, before the CMA determines the final rules.