Financial Management

TheEdge

KUALA LUMPUR: Ethics and a forward-looking approach are key factors for investors to consider when selecting a fund manager, industry experts said.

Securities Industry Development Corp (SIDC) chief executive officer John Zinkin said investors should look at the integrity of the fund manager’s organisation — for example, how the fund manager was rewarded.

“The investor should also assess whether the fund manager has an understanding of the investor’s risk appetite, that they understand what you want in your time horizon.

“Do you want your fund manager to be engaged or passive? There are a lot of fund managers who are passive investors, they don’t go in with that engagement,” Zinkin said.

Speaking to The Edge Financial Daily, he said investors should also be clear on what they wanted out of their fund managers. “Do you just want to take your returns, or do you think through the fund manager, have an interest in the way the business (you are investing in) is being run?” he added.

Meanwhile, Zinkin said the size of Malaysia’s capital market was not enough to justify the inadequate level of corporate governance exercised.

“The governance problem is hurting the Malaysian equity market as a whole. Fund managers look at Malaysia and say it’s got a governance problem, but the market is not big enough to take the risk on.

“China’s got a much bigger governance problem, but the opportunities there are so big that people will live with that. There’s not enough going on in the market to make people want to come in here, if there’s also a slight question mark about governance.”

Watson Wyatt Worldwide practice leader (investment consulting) Puah Ser Sze added that the typical practice of looking at fund managers’ past performance was not sufficient to select the right fund manager.She said the investor should be in tune with the fund manager’s skill cycle, due to the amount of “noise” in the market.

“You have to base it on qualitative data. The criteria you should look at is the business, the people, and the investment process. You have to have good people because information gets arbitraged quickly in today’s seamless market, and with regard to the investment process, does the fund manager’s organisation have a competitive advantage?” Ser Sze said.

She added investors should be cautious of products offered by the fund manager, as part of the cause of the subprime crisis had been the over-incentivisation of low-quality products.

Meanwhile, Mercer (Singapore) Pte Ltd senior consultant Antony C Cherian said: “A skilled, active manager can add value to your investments. The challenge is to find that skilled, active manager, and this is where the research is required.”

He agreed investors should emphasize a forward-looking approach to identifying a fund manager, while criteria fund managers should have included business management skills, idea generation, portfolio construction and implementation.

He added that while Malaysian fund managers were largely on par with foreign fund managers in managing Malaysian equities, foreign managers were more experienced in managing global equities, and hence there was a need for Malaysian investors to include more asset classes to their portfolio, instead of just Malaysian equities and bonds.

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