Fiduciary risk controls are found wanting in the fund management industry in Asia. While European pension funds, such as the UK Post Office Pension Fund, already require pension managers to be rated before applying for mandates, the trend is yet to take as strong a hold in Asia. He argues that some managers producing strong returns may claim that they are great stock pickers, but without a fiduciary analysis investors cannot determine whether their success is based on luck rather than judgement. Unlike fund trackers that rank investment funds based on past performance, a fiduciary rating can forewarn investors about the reliability and organizational ability of a manager, in terms of providing a consistent level of performance. And while a credit rating assesses the risk of default by a borrower, a fiduciary rating evaluates a manager's ability to protect and enhance the value of assets entrusted to it by clients.
Some managers break fiduciary risk down to market risk, liquidity risk and credit risk.
Structural risk focuses on a manager's capital adequacy and control, compliance standards and the level of client services. Performance risk examines the manager's investment process and philosophy, the quality of products offered and the experience of its investment team. We've been tracking a group of about 20 managers in Asia, not only in terms of their performance against the MSCI Index but also how they are allocating their investment in Asia. We were the first and only agency that came out and said there's a high risk of a crisis and there would be a liquidity problem for the managers to move out of the market. The problem with Asia . . .