Fund managers tapping MAS' $5b boost for markets should help promote good governance

When the Monetary Authority of Singapore (MAS) announced in February that it is launching a $5 billion programme through which it will partner with selected fund managers to invest in Singapore stocks, many potential recipients of this money quite naturally welcomed the move.

- David Gerald

Most of these "buy side" managers, as well as "sell side" analysts, were then quoted in the press saying — also quite naturally — that much would still depend on liquidity, fundamentals and investible thesis as the key focuses as to where the money would be deployed.

On the question of whether the mandate for tapping the fund should include looking beyond index components, the same criteria were cited — fundamentals, liquidity and investment attractiveness — the latter presumably encompassing growth prospects and earnings potential.

All these criteria are quite logically what rational investors will use when deciding where to place their money.

The problem is that no one spoke about investing in well-governed companies as a significant consideration, even though there is ample research to suggest that portfolios comprising such firms tend to outperform portfolios made up of less well-governed companies.

To take the argument one step further, given that the fund management industry is about to enjoy a large liquidity injection, it's worth asking — how active are institutions in ensuring firms they invest in observe good governance and if they are not, then should governance be a criterion for disbursing the money?

Although data on institutional participation in corporate affairs, including attendance and voting at general meetings, is difficult to come by, it appears that the disappointing answer is that fund managers lag far behind their retail counterparts.