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| Sunday, 7 April 2002 |
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| News Business Features Editorial
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SLIC outsources fund management by SUREKHA GALAGODA The Sri Lanka Insurance Corporation (SLIC) signed agreements with three fund managers last week to outsource part of its funds for management. The professional fund management companies include Unit Trust Management Company, which manages Ceybank Unit Trust, National Asset Management Ltd., which manages the NAMAL-branded trusts and Commercial Fund Management Ltd., which manages Comtrust Unit Trust. The assets valued at Rs 600 million at current market value comprise both cash and listed securities and will be divided equally among the three licensed fund managers, said SLIC Chairman Chrisantha Perera. He said the agreement will permit SLIC to use professional management and improve potential returns by managing the investments in a more focused manner. Initially fund managers will focus asset allocation between asset classes while managing the underlying risks associated with such investments. Mr Perera said the funds being outsourced are from the General Fund "since we are cautious about investing Life Funds as they are the money of the policy holders". The General Fund has Rs 7.6 billion for investment while the Life Fund has Rs 15.9 billion. He said that fund managers have the freedom to invest the cash in listed equity or listed shares, bills of exchange, promissory notes, debt instruments, government treasury securities and banking products. They cannot trade in shares of Commercial Bank, though the shares have been released, since SLIC has a 29 per cent stake in the bank at present. SLIC's other major investments include 11.5 per cent at DFCC Bank, 11 per cent at Asiri Hospitals, 10.6 per cent at Central Finance and Rs 35 million on the Initial Public Offering of e-channelling. Remuneration for the fund managers will be in the form of a base fee and a performance fee. The base fee will be paid monthly while the performance fee will be paid at the end of the period for 'over and above performance' of the benchmark which is the All Share Price Index. The assets are given for a period of nine months from April and the initial management agreement will end on December 31. It will be renewed annually thereafter with the consent of both parties. According to the agreement, either party can terminate the agreement with one month's notice. Mr Perera said the investment committee at SLIC will monitor the performance of each manager to ensure that investment objectives of the Corporation are met. The fund managers, welcoming the decision by the SLIC to outsource fund management, said it is a step in the right direction particularly from the so-called captive environment to a more market-oriented environment. "We are confident that this process starting from SLIC will help our potential financial markets to develop while enhancing returns to stakeholders," they said. The insurance business is regulated under the Insurance Industry Act No 43 of 2000. The fund management companies participating in this assignment are licensed to operate unit trust businesses under the Securities and Exchange Commission Act of 1987 as amended thereafter. Mr Perera said that SLIC is bound by regulation to invest 30 per cent of its Life Funds and 20 per cent of the General Funds in government securities. At present SLIC has exceeded the minimum investment and has invested 75 per cent of its Life Funds and 34 per cent of the General Fund in government securities. SLIC's total investment in the stock market is Rs. 2.6 billion which includes Rs. 1.6 billion from the General Fund. |
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