'Take action consistent with established mission of the fund'

By Ravi Abeysuriya

When it comes to investing in the stock market in Sri Lanka nowadays the chorus that has regrettably echoed has been market manipulation and state-owned funds losing billions of rupees by investing in the stock market.

Market manipulation or creating a 'false market' or one of its more locally familiar tributaries 'pump and dump' has a long, eventful and storied history.

From the Tulip Mania of the 1600s all the way to the recent US housing bubble that precipitated the global financial crisis, market manipulators have employed all types of tactics to skim the wallets of gullible investors.

What happened at the Colombo Stock Market in 2011 and early 2012 has been distressing to those who had exposure to our stock market and to those who make a living from the industry. Although some blame the SEC, CSE, retail investors, high net worth investors, state owned funds, politicians, the financial press and stockbrokers, all are culpable for the state of affairs today.

The damage has been done and stock brokers have lost much of their standing and respect today. The investment profession stands at crossroads. The time has come for everyone of us in this industry to take personal responsibility and act in an ethical manner to take the industry to a higher level.

Now is the time to rebuild confidence. The painful truth is that investor-trust in the investment industry has diminished in recent years be it in Sri Lanka or globally.

Polls have shown that people mistrust financial advisors and believe most are greedy, dishonest and that the game is rigged.

The root cause of all these problems is a failure of self-control and short-sightedness. The erosion of values and morals of a few have made a whole industry suffer the consequences. People are tired of reading negative commentaries in the newspapers about the stock market and certain investments made by state-owned funds. The public will not see the good from the bad and the ugly.

The time has come for everyone in the industry to act and take personal ownership to restore trust. Firstly, we need a bolder voice for professional ethics as there has never been a greater need to conform to a robust code of moral principles.

Secondly, let us focus on financial activities that enable economic and social progress, rather than on finance as an end unto itself. Businesses exist thanks to a social contract granted in exchange for an expectation of professional services. In today's atmosphere f mistrust, we must reconnect our profession with the public interest.

Thirdly, let us extend our knowledge, our skills and our behaviour to wider communities within the field of finance. Leadership means sharing, teaching and engaging. That means we mentor and inspire colleagues. It means we share and engage with peers, regulators, clients, and our service providers.

It is imperative that state-owned institutional funds that manage public funds have proper governance structures by adapting globally accepted standards of best practices such as the 'CFA Institute Asset Manager Code' which specifically state that asset managers should: Act in good faith the best interest of the beneficiaries of the funds whose livelihood after retirement largely depends on performance of these funds.

Act with prudence and reasonable care. Act with skill, competence, and diligence.

Abide by all applicable laws, rules, and regulations, including the terms of the scheme documents. Deal fairly, objectively, and impartially with all participants and beneficiaries.

Take action that is consistent with the established mission of the fund and the policies that support that mission.

Review on a regular basis the efficiency and effectiveness of the fund's success in meeting its goals, including assessing the performance and actions of scheme service providers, such as investment managers, consultants, and actuaries.

Maintain confidentiality of the scheme, participant, and beneficiary information.

Communicate the performance of the funds with participants, beneficiaries, and supervisory authorities in a timely, accurate, and transparent manner. (Information such as year-on-year performance on the part of the state-owned fund invested on the stock market benchedmarked against the ASPI would help alleviate a lot of criticism about their investment practices).

A collection of 50 things all investment professionals can do, called the 'Integrity List' to help restore trust in the industry has been developed by the CFA Institute.

If all stock broking firms and investment advisors use them as part of their professional practice, advocate them at their firm, regaining the trust and confidence of investors in Sri Lanka will not be far-away.

Let me conclude with a quote from Mahatma Gandhi: "If you want to change the world, you must begin with yourself. You must first become the change that you want to see in the world".

The writer is the CEO of Heraymila Securities Ltd.