|Selecting an asset management company
"3C" The key success factors in selecting an asset management company
Selecting an asset management company is a very vital step. The fund committee must study these companies carefully before making a deal and putting all your trust in them. If you are the fund committee of either a newly established fund that is looking for an asset management company or an existing fund that is deciding to make a new deal with a different company; the selection process must be well though-out as it would have a huge impact on the members’ benefits.
Two main criteria used in order to help the fund committee make a decision which asset management company should be chosen are the asset management company’s operating system and its sustainability. However, it is not necessary to weight each criterion equally.
1. Operating system
Good operating system can act as an assurance that the asset management company can manage the provident fund business properly and safely. It must also be beneficial to fund members. One can determine whether the company has a good operating system by looking at the followings:
- Investment management system
Investment decision making process: It starts from how the asset management company decides on which assets should be invested in to the decision making process of the fund management. We also need to check whether the asset management company has an investment committee regarding its investment decision. Moreover, we should consider how the fund manager makes investment decision and whether there is a record of reasons for investing in each asset.
Information assisting in making decision: such as in-house analysis or researches, financial statements, and information obtained from visiting listed companies.
Asset allocation: It is necessary to consider how a fund manager makes an allotment of securities in case he sends a buying/selling order of the same securities for many funds under his management but cannot fulfill the whole amount of the order.
Conflict of interest: The process when an asset management company deals with the conflict of interest transaction and whether they have to get any approval from the fund committee before executing such a transaction are also important factors to take into account.
- Member registration system and collection and disbursement systems
Channels of receipt and disbursement
Timeliness of payment
Accurate and reliable database and member registration
- Information disclosure system
Channels of information disclosure such as mails, emails, or websites
Disclosure of the fund performance
Monthly investment report to each fund committee
Report on the amount of contribution and benefits, number of units and unit value for members at least every 6 months
- Internal control
There must be an internal control procedure to assure that the operation of each department within a company performs effectively as well as complies with rules and regulations, for example, having a clear investment decision process, and a measurement to prevent employees’ fraud or conflict of interest transactions.
- Complaint handling
We need to consider whether a company has a special unit particularly in charge of handling complaints and how long it takes for them to deal with one case.
- Other services
Educate fund members through seminars or printed materials.
Give useful advice to fund committee on how to supervise funds.
2. Stability of the company
In order to ensure that asset management companies can continually manage funds in any circumstances, these issues should be taken into consideration,
Past performance: This can be checked from the company’s financial statements or annual reports.
Company’s executives: Check on the executives’ experience on managing provident funds, their illegal record, and the policies toward fund operation.
Fund manager: Consider which type of funds the manager has managed and which type he/she specializes in.
Indemnity insurance: Consider whether the company has any indemnity insurance or policy to prevent damages that might happen.
However, a fund committee does not have to concern about the stability of the asset management company much since the fund’s asset must be separated from the company’s and kept with a custodian. Therefore, in case the asset management company faces any financial problem, the fund’s assets will not be affected.
Each asset management company should be graded on the above mentioned criteria. If the mark is given to several companies equally, other factors such as management fee, custodian fee, auditor fee and fund administrator fee can also be taken into account.
- Collection of data
You can find a list of asset management companies at www.thaipvd.com and www.aimc.or.th.
You can request more information from the asset management companies you are interested in.
If you’re particularly interested in any company, you may ask them to give a presentation on what services they offer and answer any questions.
After the decision has been made, the next step is to make a contract with the selected asset management company. The fund committee should carefully take into account the company’s duties and responsibilities, investment restrictions, information disclosure, and contract cancellation fee.
At this moment the fund committee should have a better understanding about "3C" which are the key success factors in selecting an asset management company.