Benchmark for assessment of provident fund's performance


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Benchmarks for Assessment of Provident Fund's Performance

How to determine benchmark

The Security and Exchange Commission (SEC) approves of the notification of Association of Investment Management Company (AIMC) regarding new benchmarks for assessment of provident fund's performance. The new benchmarks will be in line with investment policies and reflect fund manager's actual ability to manage portfolio of the fund. This will enable fund committee and members to monitor the fund's performance efficiently. The new benchmarks have come into force since January 1, 2007.
Benchmarks are classified by types of assets. In case where the provident fund invests in more than one type of asset, appropriate benchmarks of such fund must be composite benchmark which is weighted by benchmarks corresponding to asset allocation policy.

Types of assets	Benchmarks
1. Equity	SET Index Return or SET 50 Index Return
2. Fixed Income 2.1 Government bonds	ThaiBMA Zero Rate Return “ZRR” Government Bond Index which maturity is equal to target duration of portfolio or Total Return of ThaiBMA Government Bond Index in case where target duration of portfolio is not stipulated
2.2 General bonds (government bonds + corporate bonds)	ThaiBMA Zero Rate Return “ZRR” Government Bond Index which maturity is equal to target duration of portfolio or Total Return of ThaiBMA Composite Bond Index in case where target duration of portfolio is not stipulated
3. Fixed deposit	Average 1-year fixed deposit interest rate which provident funds shall obtain from BBL, KBANK, SCB and KTB for principal equal to 1 milllion bahts.

For mixed funds, a benchmark of equity must be weighted by investment in stocks which is not less than average of minimum limit and maximum limit ((minimum limit + maximum limit)/2) which are prescribed in an investment policy.

Disclosure of provident fund's performance

                  Investment Management Companies must provide the following information regarding provident fund's performance for fund committee
                  1. Accumulated fund's performance
                  2. Benchmarks which are consistent with objectives and investment policies and are calculated from the same period as the fund's performance.

Comparison of funds' performance

The comparison among funds must be conducted only among funds of the same type and in the same period. In case where the performance is compared with a benchmark, the benchmark used must be consistent with objectives and investment policies of such funds. For comparison of aggregate performance of all funds which are managed by an investment management company to average return of the industry, the said performance must be compared only with the funds of the same type and in the same period. In addition, the aggregate performance of all funds is calculated by rates of return of each fund weighted by NAV.
If the period of performance is less than 12 months, the fund's performance will have to be presented from year-to-date or since inception-to-date. Annualized rate of return is prohibited.

How to determine and disclose risk

                    Investment management companies must specify and disclose amount of risk according to types of funds as follows:
                    1. Equity funds: using information ratio (IR)
                    2. Fixed income funds and mixed funds: using 2.1-2.3
                         2.1 IR
                         2.2 Portfolio duration
                         2.3 Investment ratio of bonds to net asset value (NAV) classified by credit ratingse

Reference benchmark

Reference benchmark is returns of portfolios whose investment policies have been standardized i.e. equity
funds, fixed income funds and mixed funds. The returns are calculated based upon various reference indice, such as SET index and ThaiBMA index, being weighted corresponding to investment policies.
Association of Investment Management Company (AIMC) has calculated the reference benchmark for fund
committees and members. It can be used as reference information to compare with their fund performance in order to assess their fund manager's ability in managing the portfolio of the fund. In addition, employers who have not yet established provident funds can use the reference benchmark as a guideline to consider and opt for appropriate investment policies that meets their requirements.

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Last update : March 21, 2007

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