Notice of LIBOR replacements

June 2021 update

The benchmarks[1] on 21 of BNY Mellon-branded UK and Irish-domiciled funds are being replaced. This is part of the world-wide phasing out of London Interbank Offered Rates (LIBOR[2]) and other interbank offered rates (IBORs). These are used to represent short-term interest rates. In funds they can be used as a benchmark for measuring a fund’s performance against a return on cash.

Many IBORs are being phased out and replaced with alternative reference rates, starting with the end of sterling, Swiss and Japanese LIBOR on 31 December 2021. At the moment 11 funds across the UK-domiciled BNY Mellon Investment Funds (BNY MIF), BNY Mellon Managed Funds II (BNY MMF II), BNY Mellon Charities Funds (BNY MCF) ranges and Newton SRI Fund for Charities use LIBOR as a benchmark.

A further 10 funds in the Irish-domiciled BNY Mellon Global Funds plc (BNY MGF) range do as well. (See full list below). For certain classes of shares in some of the funds, LIBOR is also used to calculate a performance fee.

Financial institutions and other market participants around the world have been working on the establishment of alternative risk-free rates for all major currencies for years. These replacement rates (see list below) are calculated based on market transactions under the supervision of the relevant regulator.

Regulatory approval

BNY Mellon Investment Management (BNY Mellon IM), the authorized corporate director, the management company and the fund board, as applicable, of the BNY MIF, BNY MGF and BNY MMF II, BNY MCF and Newton SRI Fund for Charities fund ranges (the governing bodies) and the investment managers of the affected funds have been examining these alternatives.

While best efforts are being made to transition away from LIBOR and other relevant IBORs without any impact to shareholders, the new replacement rates will not be identical. However, the governing bodies consider the replacement rates proposed not to be materially different and they are in line with industry guidance.

We expect to implement the changes in the affected UK-domiciled funds on 1 October 2021. This includes those funds in BNY MIF, BNY MMF II, BNY MCF and Newton SRI Fund for Charities umbrellas. Shareholders have been notified.

Applications have been made to the Central Bank of Ireland to obtain the necessary regulatory approvals to make the proposed changes to the relevant funds within the Irish-domiciled BNY MGF fund range. Subject to regulatory approval, we expect to implement the changes in the affected funds in the Irish-domiciled BNY MGF fund range on 1 November 2021.

Performance fee calculations

LIBOR is also used for performance fee calculation purposes in certain share classes in the following funds:

  • BNY Mellon Absolute Return Equity Fund
  • BNY Mellon Absolute Return Bond Fund
  • BNY Mellon Absolute Return Global Convertible Fund

The LIBOR benchmark used in these calculations will also need to be replaced with an alternative performance benchmark. As the proposed replacement rate is not identical to LIBOR, certain adjustments will be made to try and ensure they are as close to LIBOR as possible.

Regulatory approval is in the process of being sought and shareholders in these funds will be provided with further, more detailed, communications of the proposed changes in the coming months.

The UK-domiciled Absolute Insight Fund a sub-fund of BNY Mellon Managed Funds II, also required a new benchmark to be used in its performance fee calculation. Shareholders have already been notified following UK regulatory approval of the change.

BNY Mellon Global Funds plc
BNY Mellon Managed Funds II & BNY Mellon Investment Funds, BNY Mellon Charities Funds, Newton SRI Fund for Charities

[1] The benchmark – a point of reference, such as a specified index or peer group, used as a measure in the comparison of performance.

[2] LIBOR is an interest-rate average calculated from an estimated of what a bank would be charged were it to borrow from another bank.

[3] The London Interbank Bid Rate (LIBID) is the average interest rate at which major London banks are willing to borrow euro currency deposits. It differs from the more popular LIBOR, which is the rate banks are willing to lend to each other. LIBID is also being phased out starting this year.

Please note for SOFR 30 day compounded, the rate is based on the individual daily rates for the period – 30 days – (in-arrears), aggregated to determine compound rate.