What was the rationale behind adopting CFA Institute Asset Manager Code of Professional Conduct? How will it benefit SBI MF and its investors?
The adoption of the Asset Manager Code of Professional Conduct is aimed at achieving several objectives.
First, as one of India’s leading AMCs, we strive to be a leader in responsible investment and stewardship. By complying with the Asset Manager Code, we are showing a clear commitment to maintaining the highest ethical standards as a steward of our clients’ assets and in our day-to-day business conduct to ensure that client interests are at the heart of our firm’s investment approach.
Secondly, as we intend to continue growing our international business, we felt the need to find an efficient way to communicate with our foreign partners on how our processes comply with international standards. Lastly, as we anticipate Indian regulations to converge towards international standards over time, we found it important to be prepared well in advance in complying with the best policies.
The adoption benefits our staff and clients directly; it will help us to communicate more efficiently and have a positive impact in our reputation.
How does it help distributors?
SBI AMC is the first mutual fund in India to comply with the code, reflecting its leadership in market integrity and professional ethics. For distributors as well as investors, the code provides a benchmark of ethical conduct they should expect from their asset managers and offers a greater level of confidence and trust in firms that adopt the code. By adopting the code, we are displaying a steadfast, firm and tangible commitment to professional ethics. We believe this endeavor will help in not only strengthening distributors confidence in us but will go a long way in shaping a more trustworthy asset management industry.
How many firms have adopted CFA Institute’s Asset Manager Code of Professional Conduct globally?
Globally, there are over 1000 asset management companies that have adopted this code.
What kind of changes are you planning to make in your fund management process after adopting CFA Asset Manager Code of Professional Conduct?
As far as fund management process is concerned, the core investment philosophy remains the same. We have a very well-articulated investment philosophy, a governing structure, robust research, portfolio construction and monitoring mechanism in place. For example, we have an individual template for each of our funds defining the distinct philosophy, positioning and risk-return framework and limits set at a granular level. There is a monitoring mechanism in place that also ensures that the product sanctity is maintained at all times. We could claim compliance with the code given that we already have a code of ethics and other policies and procedures in place in fund management that address the principles and provisions of the Asset Manager Code of Professional Conduct.
Will you change your existing fund management policy after adopting CFA Institute’s Asset Manager Code of Professional Conduct or will you sync it with existing policy?
We looked at each aspect of our business process and procedures and made modifications wherever necessary to ensure that we are consistent with the principles and provisions set forth in the Asset Manager Code of Professional Conduct. We already have code of ethics and other policies and procedures in place. We have to ensure that we adhere to the six pillars set out in the code namely, that managers must act in a professional and ethical manner at all times; act for the benefit of our clients; act with independence and objectivity; act with skill, competence, and diligence; communicate with clients in a timely and accurate manner; and uphold the applicable rules governing capital markets.
CFA Institute does not verify the accuracy of investment manager’s claim of compliance with the Asset Manager code. How will you ensure that your fund management team adheres to the code in spirit since they are subjective in nature?
Given that it is a self-declaration, it puts an additional responsibility on us. A team comprising senior people from investment, risk, compliance and operations has been put in place with specific responsibilities to ensure complete adherence. We have an in-house internal audit team apart from external auditors who perform concurrent audit. The scope of their oversight would be expanded.
Which areas of fund management does the Asset Manager Code of Professional Conduct cover?
The code provides a universal framework for asset managers to assess the quality of their business policies, practice and conduct, covering all key aspects of an investment management business. For example, one of the six pillars of the code is to act with skill, competence, and diligence. We have large number of CFA Charter-holders in the organization and have promoted other similar courses (Claritas certificate by CFA institute, Financial Risk Management) across teams to increase awareness about ethical and professional standards while enhancing levels of skill, competence and diligence. We have a robust research process in place and have a knowledge management System (KMS) that was developed in-house to follow the highest standards in diligence. Similarly, to ensure that we maintain independence and objectivity in investment decisions, we have well-defined policies and procedures in place for dealing with sell-side people and issuers.
Can you take us through some of the code of conduct of Asset Manager Code of Professional Conduct?
The Code of Conduct is articulated around the following themes: loyalty to clients, investment processes and actions, risk management compliance and support, trading, performance and valuation, disclosure and client communication. It provides a framework for putting in place a system to frame policies that will ensure best protection of your client’s interests, how to translate those policies into processes, how to monitor those processes, and how to calculate and disclose the information properly to your clients.
Is it onerous to adhere to CFA Institute’s Asset Manager Code of Professional Conduct?
By and large, the regulatory framework for asset managers in India is fairly tight but it requires a deep commitment of the leadership to go beyond the regulation as far as highest ethical and professional standards are concerned. Adopting this code is not about having a check list in place and boxes to be ticked by someone but about having a strong culture and ingraining the standards in each aspect of the business practice and conduct.
Why do Indian AMCs not actively take part in voting in investee companies? What is SBI MF’s voting policy?
Historically, asset managers have "voted with their feet" meaning they sold the stock if they didnt like what management was doing. But we have a strong belief that it is our fiduciary duty to engage with companies proactively. With growing size of domestic asset managers and regulatory interventions (norms for voting policy prescribed by SEBI, changes in the Companies Act and listing agreement empowering minority shareholders, e-voting etc.), asset managers are voicing their views more actively at shareholder meetings. We have a voting committee that looks at every single resolution in shareholder meetings of all invested companies. We were among the first AMCs to engage a professional proxy advisory firm and put an internal team in place exclusively responsible for voting in investee companies. Voting policy is a critical component of a comprehensive ESG (environment, Social and Governance) framework that we are putting in place in our investment process.
