Minimum bar for fund managers

SEC to regularise investment and fund management :

Hiran H. SENEWIRATNE

The Securities and Exchange Commission of Sri Lanka (SEC) will be consulting all registered companies and relevant stakeholders to impose a minimum bar on funds to be managed by a fund manager/investment manager for any investor or a client in line with market requirements.

Currently, there is no minimum amount for a Fund Manager/Investment Manager to handle on behalf of the client. But in other countries there is a stipulated amount for an Investment Manager to manage investor funds, SEC Director-Supervision Tharanga Kariyawasam told the Daily News Business.

She said fund management is handing over of the investment decision making function and the investment administration activity to an external third party (Fund Manager) for which the external third party receives a fund management fee.

Kariyawasam said they being the regulator, their main objective is to protect the investor and to create a fair and transparent capital market in the country. “Generally investment management function is mostly done for high networth category by Investment Managers in other countries.

Fund Managers manage instruments like treasury bills, bonds and other instruments which is different to depositing money in banks,” she said.

“The income earned from the investment portfolio belongs entirely to the client and the investment manager is responsible for the evaluation of the investment of the investment performance and the benchmark should be guaranteed on the return on the investment portfolio,” she said

The scope of the Investment Management activity should be clearly defined in the Fund Management Agreement, which is a legal contract agreed upon by the client and the investment manager. Further, to enable the Investment Manager to carry out investments on behalf of the clients the clients’ grants a Power of Attorney to the Investment Manager,” she said.

Investment Managers should always act in the best interest of the client. They should always have a reasonable basis for investments. If there is any possibilities of conflict of interest where an investment is made in a related company instrument it should be clearly disclosed to the client,” she said.

Kariyawasam said fund managers work with a benchmark work on behalf of client. Ownership of investment client has to have an Investment Policy statement, Fund Management Agreement and Power of Attorney.

Therefore all the funds should be in clients name.

She said where the fund manger is part of a group of companies, which undertake other financial activities.

The fund manager shall ensure that there is an effective system of functional barriers (firewalls) in place to prevent the flow of information that may be price sensitive or material and non-public between the different areas of operations.