As regulations tighten around Thailand’s fund promoters, the domestic industry association has appointed an international research house to review local products.

The move is a result of a recent regulatory change which compelled fund houses to provide investors with a broad fund performance report.

It comes as fund managers are increasing their overseas exposure and the use of complex securities, which has made it more challenging for investors to make effective fund comparisons.

This week, Thailand's Association of Investment Management Companies (AIMC) announced it had appointed Morningstar Research to review the portfolio holdings of about 800 funds on a quarterly basis against the AIMC’s monitoring criteria. Morningstar will alert the AIMC regarding funds whose holdings fail to meet the category requirements.

Thailand’s Securities and Exchange Commission made it compulsory from January 1 for asset managers to publish details of their funds’ performance compared to the rate of return delivered by similar products. The AIMC supplies this information to the managers. From July 1, fund managers will also be required to disclose portfolio holdings to the public on a quarterly basis, to increase transparency and provide investors with current information.

Anthony Serhan, managing director for Asia-Pacific research strategy at Morningstar, said the AIMC wanted a more rigorous review of fund classification following the requirement for the performance reports.

The mandatory fund report include an outline of rival fund performance within their AIMC categories, and is given to end investors at the point of sale.

“So in addition to the returns of the fund being sold, an investor can also see the spread of returns being achieved by similar funds within the same category,” Serhan added.

In terms of the fund categorisation process, Serhan said there were three ways to do this: use the manager’s description of the strategy, rely on what the manager says are the exposures within a portfolio, or analyse the actual holdings of the fund to assess the exposures that drive categorisation.

“In reality we use all three, but a system built on portfolio holdings-based analysis is clearly the strongest,” he noted.

“A fund house that says it is investing in small caps but upon review more of the holdings are actually in large caps is the sort of thing we can pick up.”

AIMC has also reduced the number of fund categories from 112 to 32 to achieve a more meaningful comparison between them.

Serhan said that too many categories are confusing for investors. An excess of categories can also be misleading as a fund has a greater chance of being at the top of a category.

Serhan added that as the region moves to borderless fund distribution through various fund passporting schemes, the need to improve comparability of funds between multiple markets will become more important.

“Thailand has a genuine desire to achieve global best practice. They’re not doing it overnight but are putting the foundations,” noted Serhan.

Other regulations that recently came into force in Thailand includes the simplification of a fund prospectus from 20 pages to four pages, implementation of a uniform disclosure of fee information, and making investors aware of portfolio managers’ names.