While the funds industry appears to be on the road to recovery, there are three key trends asset managers should heed, says a senior financial regulator in Singapore. They are: choosier customers; a greater focus on risk management; and tightening regulations.
Ng Nam-Sin, executive director at the Monetary Authority of Singapore (MAS), was speaking to an audience of investment professionals in the Lion City last week.
At the Investment Management Association of Singapore's (IMAS) 11th annual conference, he noted a greater focus on client needs. "Gone are the days of blind faith in black boxes. Investors are demanding transparency and seeking products that are simpler and tailored to their needs. Investors will want to know that funds are performing according to the claims in the prospectuses."
Ng highlights the role played by IMAS in championing the adoption of global investment-performance standards and says the trade body is helping to create "objective and comparable metrics" across funds.
Secondly, he says, the need for better risk management cannot be over-emphasised. In the recent crisis, counterparty and liquidity risk overshadowed the more common market and operational risk. "As investors become more discerning," adds Ng, "comprehensive risk control is no longer an option, but rather a critical requisite."
The last theme highlighted by Ng is that of tighter regulations. Politicians and regulators have proposed sweeping reforms of financial systems and a raft of new rules in an effort to prevent a recurrence of recent events, he says.
Whether it is in the form of greater product regulation and governance or increased fund-manager supervision -- such as has been proposed in Europe, to much dismay -- fund managers will need to adapt their business models to these higher levels of supervision and standards, says Ng.
Given these trends, how should the industry respond?
For one thing, financial institutions -- including fund managers -- must continue to build trust with their investor clients, says Ng, by showing they understand their long-term needs in all market conditions. He sees doing so as "the only sustainable way to grow your business and show consistent revenue growth".
Post-crisis, good risk-management and corporate-governance practices have become even more critical, he adds. "What is done in the front office serving clients needs to be seamlessly integrated with the mid- and back-office functions of controls and compliance," says Ng.
Competency is also an issue: fund managers need to be familiar with products and the latest market developments and proficient with investment-management schemes. He says it's the responsibility of senior management to train and develop staff competencies on a continuous basis.
Maintaining high standards of supervision and governance will also boost investor confidence and thereby help sustain the industry's growth. "Calibrated at the right levels," Ng says, "regulations can accommodate growth and innovation in the industry while maintaining investor confidence."
"Our own guiding principle is to fine-tune the level and intensity of supervision in a way that will foster recovery in the short- to medium-term and growth in the long-term for the asset-management industry," he adds. "If we can do all this well, the fund-management industry is well positioned to ride on Asia's growth."
Since Western economies look some way off full recovery, says Ng, Asia has emerged as a more compelling story for investors. Sound macroeconomic management and structural reforms coupled with Asian demographics have led to strong economic growth over the past decade, he adds.
"This has, in turn, bolstered living standards and created a growing middle class, as well as producing an increasing number of high-net-worth individuals," says Ng, "All of whom will need the services of professional money managers."