Landmark risk and performance principles for the funds industry released this week in Singapore are seen as just the start of an important debate on improving risk management practice.
Hence the document* from the Investment Management Association of Singapore will be updated as needed based on industry feedback, noted Trevor Persaud, chairman of IMAS’s performance and risk committee.
The guiding principles – thought to be the first published by an investment industry association to address both performance and risk – aim to help raise standards across fund houses in the city state.
“We want to champion this from Singapore,” Persaud told AsianInvestor. “Hopefully we can help local fund managers and local operations of global firms to agree that there is a best practice standard they should be adhering to, and hopefully there will be a knock-on effect on their cross-jurisdictional operations across Asia."
The document provides a discussion of governance and high-level summaries of what an investment risk and performance function should be doing, Prescriptive guidelines would not have been appropriate, noted Persaud, because each firm's approach is very different.
“Do [the principles] go far enough? Definitely not,” he said. “But we felt this was an appropriate starting point for the dialogue with our members.” IMAS intends to update the document – which has been developed over the course of some 18 months – in response to industry feedback.
The idea to develop the principles was sparked by a roundtable convened by the association’s risk and performance committee in February 2014. It involved IMAS members ranging from the biggest global asset managers to small boutiques.
‘Fund manager is king’ concept
“One would have hoped that a lot of what the principles recommend was already in place,” said Persaud. But even some large international asset managers were lagging in terms of applying Western standards of risk management, he noted.
Their approach was admittedly more in line with Western standards when it came to performance measurement, he added, but even here there were some significant gaps.
Persaud said it seemed hard for firms in Asia to shake off the concept that “the fund manager is king” and should not be challenged. At local firms and even some local subsidiaries of global players, the concept of independent monitoring and appraisal of risk and performance is still not a commonly adopted approach, he added.
Ultimately, said Persaud, there was a huge deviation between practices within organisations in Singapore. Some firms had a well established and strong focus on risk management, while for others it was not seen as a priority, particularly given the expense involved in maintaining the tools, data and people to perform such functions.
Hence IMAS decided to put together a document that asset managers could use internally to check “whether they are doing all that they should be doing from a risk management and performance measurement perspective”.
Hong Kong might have been another obvious location in which to launch this type of initiative in Asia, said Persaud, as the community is similarly advanced.
Asked whether the Monetary Authority of Singapore (MAS) backed the initiative, he said IMAS did not feel the need to consult with MAS as part of the drafting, as risk management and performance measurement were seen as specialist technical areas of the industry.
They are areas where lawmakers would normally communicate their requirements at a high level to support investor protection and leave the details to industry practitioners, he noted.
*The Guiding Principles for Investment Risk & Performance Analysis can be downloaded from the IMAS website by clicking here.