Loud and clear
Ethics is not a word investors associate with fund management, and perhaps unfairly. The asset management industry, after all, was tarnished by the mis-selling of products that had been structured by investment banks – Lehman Brothers-backed collateralised-debt obligations offloaded pre-2008 in Hong Kong, Singapore and Taiwan. Yet there remains a perception even now that investors in Asia don’t care about ethics, only profits. Well, there’s a weight of opinion in our April edition to suggest otherwise.
When asked their views on fund management firms in a CFA Institute survey exploring trust in the industry, both retail and institutional investors prioritised full fee disclosure and a clear explanation of costs over investment returns that beat peers or a target benchmark (see page 10). Moreover, institutions placed ‘acting in an ethical manner in all interactions’ at the top of their wish-list for managers. The survey showed that managers were failing to deliver on disclosure requirements, with asset owners most prominently doubting that their financial interests were even aligned.
What it indicates is that an obsession with performance is detrimental to industry growth. Managers need to understand that competing on performance is not sustainable. What is more important in the buying decision is transparency, disclosure and easy-to-read reports. Competing on those tenets is easily sustainable, and the only reason investors remain unconvinced is because managers are still getting these basics wrong.
Of course, the onus is not only on managers to act ethically. It is on all investors to take an ethical approach to where they put their money. Yes, the missing link is demonstrating how an ethical approach to investing enhances returns or reduces risk; evidence for this remains largely anecdotal. But it is incumbent on the institutions to drive a change in behaviour. Take Japan. Following the introduction of the Stewardship Code in 2014 and the Corporate Governance code last year, there is much talk in Tokyo of environmental, social and governance issues. Yet there is also a palpable fear that unless Japanese institutions incentivise managers to carry out ESG screening, the practice will be stillborn (see page 18).
But hope remains, as you can see from our in-depth interview with Dato’ Nasir of EPF, Malaysia’s largest pension fund (see page 12). Asked if he prioritised ethics over returns, he replied: “Would you want to put your money with a company that tells you different things from year to year, or someone who is giving a consistent, clear message? You find companies that have proper governance and disclosure. These things are very important to an investor.”
Hence they should be important to managers, too. Getting the message yet?
In This Month's Magazine
On the move
Leung in ‘sideways switch’ at SFC; veteran Brunner to retire from BSI; Ibbotson names new Japan president; BMO hires Goll for institutional sales; Walls steps up at Fidelity
8 Regulatory Analysis
The new man in charge of China’s securities regulator faces a tough task. It’s time to give him real power to tackle deep-rooted problems in the country’s financial sector
10 Data Centre
Investors rank transparency and ethics in asset managers as more important than performance, finds a CFA Institute study
Cover story: An evolving investor
Mohamad Nasir Ab Latif, deputy CEO, Employees Provident Fund of Malaysia
18 Our Japan Institutional Investment Forum hears how corporate pension funds cope in a world of negative interest rates
22 Kuwait and Saudi Arabia whet fund managers’ appetites with talk of new sovereign fund entities
24 News: Canada pension fund’s EM push; changes at Korea’s NPS; NZ Super’s merger arbitrage mandate; First State brings functions in-house; Japan pension funds eye infrastructure
Who you need to know
The key fund selectors and distributors in Thailand, where banks are beginning to open up their platforms to outside fund managers
30 William Ma, chief investment officer at Noah Holdings, on finding value amid market volatility
32 News: ANZ breaks up global wealth unit; Manulife splits distribution and marketing; DBS promotes Teo; New Silkroutes Group buys into Stamford; Deutsche names Asia-Pacific wealth COO
How Malaysian managers are hunkering down with sharia and other products to survive the country’s current problems
36 Why global asset managers are using their wholly foreign-owned enterprises to get China right
40 The Boao Forum for Asia hears calls for tighter regulation of internet finance in China - including from firms that would be affected
42 Mellody Hobson, president of Ariel Investments, speaks out on diversity issues at our Diversity in Asset Management forum
44 Singapore targets a new open-ended investment company framework, while robo advice is seen as a threat to fund houses, the IMAS conference hears
46 Mustafa Abdel Wadood, global head of private equity at The Abraaj Group, discusses its approach to investment
48 News: AllianceBernstein to hand back China bond quotas; Schroders sets up in Beijing and Shanghai; multi-asset strategies and ETFs to bloom in Taiwan; Brexit seen as risk for Asian investment into Europe
Other People’s Money: Masters of the universe or servants of the people by John Kay