Fund managers have a significant role in breaking the “buy and hold” mentality in the local stock market and it will only be to their benefit. This from CMMB Managing Director & CEO Ram Ramesh, CFA, speaking at the Caribbean Centre for Monetary Studies seminar on Regulatory and Institutional Challenges for Fund Management in the Caribbean on 25 May, 2007.

 He said the fund management industry and the capital markets are intertwined in their fates and are mutually reinforcing pillars of any economy. He pointed out that as major stockholders, it is the responsibility of fund managers to develop and boost the stock market. Fund managers will be the biggest beneficiaries in an active stock market, as they will be able to see the market grow and can reap rewards. 

 He says when the market is going up everyone wants to hold on to their stocks and nobody wants to sell and when the market is going down everyone wants to sell but nobody wants to buy. This “buy and hold” mentality across the industry is a challenge that is in part responsible for the vicious cycle in the stock market that needs to be broken. Mr. Ramesh says fund managers have a huge role to play in breaking this vicious cycle by both divesting positions during the up market and taking long positions in the down market. 

Mr. Ramesh addressed the new guidelines on Collective Investment Schemes (C.I.S.) by the Securities Exchange Commission which seeks to bring in line local mutual funds with international best practices. He also focused on the various regulatory regimes that govern the Caribbean mutual fund industry, some of the institutional challenges and cultural impediments faced by fund managers in Trinidad and Tobago and the performance reporting standards for fund managers in the region. 

He examined the similarities and differences between the various Caribbean islands with regard to investment powers for CIS’s, stating that while T&T and the OECS have strong similarities, Jamaica has chosen a different approach. That is, rather than defining a list of allowable investments, Jamaica has adopted an approach whereby a fund can be developed by abiding to a set of risk constraints. Ramesh says Jamaica’s approach is focused more on the portfolio risk rather than the risk of the individual instruments themselves. 

Ramesh also discussed the performance reporting by mutual funds, saying that for investor friendliness and to create a level playing field of performance guidelines, standards such as the Global Investment Performance Standards or GIPS from the CFA Institute can help investors to evaluate the performance of various fund managers on a uniform scale. 

Given the size and importance of the local mutual fund industry which has grown from TT$5 billion in December 2000 to TT$34 billion by the end of December 2005 which is approximately a 500% growth rate, the impact of this segment on the capital markets is phenomenal. 

He says with the rapid growth of the mutual funds industry, one way to expand a small market, like T&T’s, with a limited number of listings and volumes, is through derivative instruments such as short selling, options or index linked products. 

Mr. Ramesh sees the repo market developing faster than the bond market in the short run, however he believes the bond market will benefit from the development of a rating based investment culture as it will counter credit risk and allow the industry to move away from investments advocated by legislation to broad rating based approved lists.  He also said reliable yield curves and regular two way price quotes will help to lessen market risk.  

For more information contact:

Lisa-Marie Laveau at CMMB on 623-7815 ext. 2125

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