LOCAL fund managers must be professional and honest in carrying out their duties.
Second Finance Minister Tan Sri Nor Mohamed Yakcop said the public invested in unit trusts because they believed that professional fund managers would be able to generate better returns for a given level of risk than they investing directly in the stock market.
Hence, he said, unit trust funds should be managed professionally by fund managers with the highest level of skills, technical competence and integrity and honesty.
The Securities Commission's licensing framework acts as the first line gatekeeper that will monitor the technical competency of fund managers.
However, the minister reminded fund managers that all skills and attributes were like a knife, and needed to be constantly sharpened.
Nor Mohamed noted that honesty and integrity were more nebulous and difficult to track.
“But for anyone who is on the verge of falling prey to temptation, the prospect of custodial sentence, and the wrath of disgruntled investors and upset regulators, I hope, will be sufficient deterrents,'' he said in his keynote address to The Star/Standard & Poor's Investment Funds Award 2004.
Also, Nor Mohamed noticed that the fund management industry promoted products focusing on the expected absolute return per se, often neglecting to equally highlight the underlying risks and management strategies required to target such returns.
He said it was imperative that fund managers be more responsible in making claims on the achievable targets, and investors should be alerted to the risks fund managers had to take to obtain the expected returns.
Another prospect of professionalism was ensuring healthy competition.
Nor Mohamed said competition would not allow hard-sell tactics to be used as a substitute for performance and eefficincy to gain market share, adding that innovative product development was also a crucial prospect of competition.
Local fund managers should make use of the flexibilities available for product development so that the increasingly varied risk and reward profiles of the public could be met, he added.
According to Nor Mohamed, the guidelines introduced by the Securities Commission in relation to Islamic unit trust funds had attracted the interest of regulators and fund managers from other Muslim nations.
He urged local fund managers to continue to innovate and provide global leadership to the Islamic funds industry.