Question

 

Over the last few months, the Securities and Exchange Commission (SEC) has cracked the whip at the Investment industry in a bid to restore sanity in the industry. In November 2019, the Ideal Capital Partners and Blackshield Capital Management (formerly Gold Coast Fund Management) were liquidated for failing to return clients’ money which remain locked up. The operations of Unisecurities Limited, FirstBanc Financial Services Ltd, Beige Investment, Heritage Securities Limited, and All Time Capital among others ended. In all, 53 fund management companies had their licenses withdrawn by the SEC.

The SEC’s statement on closure of the institutions said they have failed to perform their functions efficiently, honestly and fairly and in some cases are in continuing breach of the requirements under relevant securities laws, rules or conditions. Other issues raised were the liquidity challenge from counterparty transactions due to the collapse of some banks weak corporate governance which compelled SEC to crack the whip.

 

Required

As a manager of a fund management that was not closed down, what measures will you put in place to ensure that your institution will not be caught in the situation of the collapsed fund managers.

Answer 1

As a manager of a fund management, I propose the following recommendation :

i) Close monitor of economic conditions- the most important function will be to develop and implement investment strategy that will support the goal /objective of the fund. I will keep a close watch on the economic conditions that will help me to analyse the situation and take informed decision.

ii) Compliance- This is the most important factor. Failure could lead to revocation of licence.

iii) Maintain Proper liquidity-The liquidity position may be thought of as a reservoir into which cash is deposited from revenue and cash flows out to pay obligations i.e matured or redeemed funds.

iv) Risk Analysis- Always be informed and remain a step ahead to sense any turmoil in economic conditions through in-depth analysis of sectors before investing funds. Some sectors which have long gestation period , will be the last in the investment portfolio.

v) Diversification-Investment will be broad based that will include proper mix of portfolio, with some portion be invested in debt fund or Government securities and balance in equity fund.

vi) Overseas investment- If the law of the country permits, investment in overseas bond/securities will provide a cushion against economic turmoil of the base country. Take the case of Gold Coast Fund Management. Government of Ghana agencies , including the Finance Ministry, owe the company over GHS 2 Billion relating to projects that the company had financed. Had this debt been paid, such a situation would not have arisen. Gold Coast Fund Management licence was revoked in 2019.

vii) Corporate Governance-Highest level of Corporate Governance is critical in order to sustain in the market and retain and enhance the trust of various stakeholders. Good Corporate Governance is guided by some of the core principles like transparency, disclosure, accountability, compliance, ethical code, and protection of stakeholders (unit holders) interest.