New guidelines to help fund management firms get a better handle on the potential risks and returns of the products they sell to clients have been released.
They include introducing more independent reviews so money managers can have a clearer idea of the possible pitfalls of an investment.
The guidelines, under discussion for more than 18 months, were released by the Investment Management Association of Singapore (IMAS) yesterday.
The hope is that the new guidelines will help firms structure and manage how the risk and performance analysis roles work.
Mr Trevor Persaud, chairman of IMAS' risk and performance committee, said measuring and analysing the risk and return of the products differ across the industry. "There is a significant difference in what may be common best practice among multinationals, compared with the principles of small boutiques," he said.
He added that there was no specific help for practitioners in the firms over what is considered the best practice, essential or a "nice to have". The hope is that the new guidelines will help firms structure and manage how the risk and performance analysis roles work.
Other guidelines include subjecting portfolios to regular scenario analysis and stress tests.
The guidelines are meant to complement the Global Investment Performance Standards. These standardise the reporting of performance statistics so that managers will not just focus on star funds.
The risk and performance committee of IMAS developed the new guidelines with help from representatives from large investment managers and financial institutions in Singapore, including Standard Chartered Bank and Eastspring Investments (Singapore).
Committee member Wee Tian Sing, who heads risk management at Nikko AM Asia, noted at a panel discussion yesterday that a set of guidelines is necessary given the wide responsibilities risk managers have.
He said the investment risk management function not only works with portfolio managers, but can also help the chief risk officer or senior leaders of a firm understand risks better.
"We recognise the risks of the organisation, and the business risks and how the organisation's revenues will be affected by those," said Mr Wee.