The Financial Conduct Authority said it fined Aviva Investors £17.6m for systems and controls failings spanning eight years to June 2013.
“These weaknesses led to compensation of £132m being paid to ensure that none of the funds Aviva Investors managed was adversely affected,” the regulator said.
Aviva Investors, which manages £240bn on behalf of customers and is part of the insurance giant, used a management strategy whereby funds that paid different levels of performance fees were managed by the same trading desk.
The same people were managing hedge funds, which typically pay a high fee for outperforming the market, and so-called long funds that pay much lower fees. Some of these fees were paid to traders who managed the funds.
“This type of incentive structure created conflicts of interest as these traders had an incentive to favour one fund over another,” the watchdog said. This practice is known as “cherry picking”, it said.
Traders were able to delay recording the allocation of trades for several hours without being detected internally.
Aviva Investors said it cooperated fully with the regulator over the breaches.