The Hindu Business Line : `Focus is on governance'

A SURVEY of the global asset management industry, conducted by Deloitte, has thrown up a host of issues that local investors in mutual funds may find interesting. The survey deals with a number of aspects - including regulations, distribution, fund governance and alternative investments.

Serving as the backdrop is the "steady but unspectacular growth" reported by the major economies during 2004 and the fact that similar performance can be expected in the days ahead. Three major trends have lately emerged, which can together form a ready reckoner for the local asset management industry and those who follow it:

There have been instances of misconduct in the distribution and trading of MFs over the last two years. These have led to a broad re-examination of industry regulation and practices.

Investors have come to expect a wider set of investment options including hedge funds, exchange-traded funds, private equity, real estate and separately-managed accounts.

Firms that aspire to be more than niche players will need to offer a full range of investment products and possess a broader range of skills.

Distribution costs and closer scrutiny of fees by investors are driving firms to increase efficiency to support their margins - rationalising their product range and streamlining operations.

And, now for a few facts & figures. One, US fund assets accounted for 53 per cent of the $14.4 trillion handled worldwide in 2004. Two, relationships between asset managers and third-party distributors are being changed or questioned. Three, firms are rethinking their offerings - merging or liquidating funds that are too small to be profitable, putting funds up for adoption by larger players and also preventing their biggest funds from growing too large to manage effectively.

"Globally, there is a focus on governance. Regulators are vigilant on the governance of MFs in such areas as proxy voting and the independence of boards of directors", the survey has mentioned, adding that: "Investors are no longer content with a menu of stocks, bonds, and mutual funds". In other words, in their search for greater absolute returns, they are increasingly turning to other options. Hedge funds have particularly grown exponentially.

Attracted by customisation and tax efficiency, more individuals are placing their assets in separately-managed accounts.

Meanwhile, for the fund industry, there is larger burden on small firms, especially because compliance costs are rising. "Covering these costs is especially difficult for smaller firms, which are unable to spread them across a large pool of assets. The increasing compliance burden may drive smaller firms to merge or else be acquired by larger firms," it is presaged.

And, lastly, there are interesting observations about corporate governance standards, an issue that is being raised around the world.

In fact, there are proposals that could fundamentally restructure the relationships between fund houses and the products they manage.

Incidentally, emerging markets have also realised that higher corporate governance standards are necessary to attract foreign investment, it is mentioned.

"The improved state of corporate governance in India was acknowledged by the decision in November 2004 of CalPERS, the largest pension fund in the world, to invest $100 million in the country over the next six months," goes the considered opinion.

Feedback may be sent to nilanjan@thehindu.co.in

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
`Focus is on governance'

Positive stretch likely to continue

If you've short positions, stick to stop losses

Most counters end weak

`No reason to think that growth will come under huge pressure very soon'

IPOs: Govt plans separate books for institutional, retail buyers