Asia continues to lag other regions for integrating ESG principles with investing; better data and stronger regulatory requirements will help institutional investors, market observers say.
The CFA Institute received 204 responses from both CFA charterholders and others in the asset management industry based in Hong Kong, Singapore, Japan and Australia, of whom 45% manage hedge funds or funds of hedge funds. The other 55% consists of traditional long-only fund managers, investment advisors who serve both institutional and private clients, prime brokers, custodians, administrators, plan sponsors and trustees, and data service providers, says Lee Kha-Loon, head of the CFA Centre in Asia Pacific.
Respondents were presented with 24 practice standards and 78% say adopting these would ensure adequate self-regulation in the industry. These standards address fiduciary responsibility to clients, management and investment processes, internal trading controls, compliance, valuation policies and risk monitoring. These are part of a code of ethical and professional standards for firms managing client assets that the CFA Centre promulgated in 2005.
Lee says going beyond the letter of the law and adopting best practices is the best way for the industry to be regulated.
The majority of respondents agree that a compliance plan should be part of a regulatorÆs vetting process for new licenses; that key personnel should have a minimum level of experience; and that the licensing of management firms is ôvery importantö.
Those surveyed tend to oppose imposing minimum subscription amounts for different categories of hedge funds, or restricting retail investors to specific investment strategies.
Hedge fund managers should, most agree, disclose types of investments and strategies the fund will take, the expected and maximum level of leverage, conflicts of interest, fee structures and redemptions and the expected degree of diversification or concentration of investments. In turn, although it isnÆt required in the markets where surveyed managers operate, they thought investors should sign an ôacceptance of riskö statement.
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