The 1998 Third Annual Survey of Risk Management Practices of Unit Trusts in Singapore

Abstract

Liberalization of Singapore's financial sector causes its fund management industry to expand rapidly. As of December 1, 1998 there were 191 unit trusts to choose from. Eventually, Singapore, like the USA and Hong Kong, will have more unit trusts than stocks listed on its exchange. Many challenges recently faced the industry: (1) in 1997-98 the Asian Financial Crisis created a very difficult investment climate; (2) in 1997 the Investment Management Association of Singapore was registered as a private industrial body; and (3) in 1998 the Government introduced a multi-pronged strategy to make Singapore a premier fund management center in Asia in the next five to ten years. We report the results of an ongoing survey of the transformation of the fund management industry in Singapore and focus on the improvement of its risk management practices. This project was initiated in 1996 and is continued under the aegis of the Unit Trust Research Unit of NBS' Centre for Research of Financial Services (CREFS). Overall we find a better industry awareness and more realism than in the preceding years. The quality of both the survey responses and of the reported risk management practices has improved in the past three years. The 1998 response rate was 25.9%, up from 11.4% in 1996. There is more disclosure of the managers' background, asset allocation, investment styles and various kinds of risk exposures. Regrettably, still two thirds of the unit trusts do not provide any risk analysis to their unit holders, because it is still not common practice. Singapore unit trusts diversified more to the developed markets in North America and Europe. But there is still an undue concentration on equity investments. Forwards only often hedge currency risk exposure. But two thirds of the respondents in 1998 thought that it was an excellent time to pick up common stocks at bargain prices in the region.