QUOTE(c0cac0la @ May 23 2009, 03:34 AM)
1) You are implying that Fund Managers are allowed and encouraged to take excessive risk, while I thought it is regulated. May be not in Malaysia, I suppose.
3) All financial institution is governed and regulated on the amount of risk they took, basic measurement such as the Greek factors, and Value At Risk calculations should be reported to the central bank regulatory. Is that not the case for Malaysia ?
4) Is there any hedge funds in Malaysia ?
5) The key concept of finance is all about opportunity cost. When a person hire a fund managers and pay him for transaction brokerage fees, you mentioned it is a 'head you win, tail I lose' situation, but do not forget the person frees up his time in doing those transactions and able to use those time to earn money. Some would argue that what is important is 'Can you earn more than the brokerage if you were to do it yourself?' rather than declare that paying brokerage mutual funds is not worth it. What is your opinion on this ?
8) Assuming both can do the same efficiency and effectiveness in investment, which would also translate to the fact that the chances of success is the same. The individual can make the same mistake as the fund managers. The only difference is how risk averse is the individual. If the individual is highly risk seeking, he/she will potentially bet bigger than the fund (which should be regulated on total risk committed). So I suppose your suggestion is for investor who is highly risk averse, who would bet lesser than the fund manager and therefore lost less money should the bet turn bad. What do you think ?
9) Given the above, I would also think you may want to consider this: If the fund manager is more prone to taking higher risk, which has higher return, it is best to engage them during the bull time. When bear market comes, just withdraw your money and put it into bond or other fixed income product. Isn't it better to make use of fund managers for what they are good at, rather than discount them completely ? Would like to hear your opinion on this.
1) Fund managers (this could be excluded as explained below) or CFO of financial instituiion are well known for risk taker as it is their job scope. While they get performance bonus based on risk taking if it yield fruit.
Recent financial crisis has exposed this issue quite thoroughly, as fund managers you get nothing if being defensive. But if you are wrong to be defensive, your job could be in jeopardy because you performs poorly compared to the peers.
So this always prompt FI CFO to take more risk, as long as more loan being granted (like subprime) or financial products being sold like CDO, then I contributed more profit to the company, I get more bonuses and better performance. Whether this risky move will be turning sour or not after few years, nobody knows and they don't care much (subprime issue has exposed this issue).
2) no issue on this
Malaysia UT is highly regulated, they cannot do leveraging or whatsoever, just purely invested client's money into stocks. So leveraging and excessive risk taking is out of question, but the major problem is fund is rigid, no matter how high the market goes, they still will invest no less than 70-80% of their fund money available, no matter how they see the market whether it is bubble or unsustainable already.
The execessive risk taking issue is more on investment banks and financial instituition that can do levaraging, not appropriate appied on UT fund managers except the rigid strategy they cannot do anything.
3) In US, there is no guideline and regulation to stop any financial instituition to have whatever leverage ratio can be 1:50 as well. In Malaysia, since a lot of finance product is highly regulated, you don't see much chance for FI to do some funny stuff like CDS, MGS etc. It is the derivatives product that bring out this financial crisis, not old fashioned banking loan, which Malaysia is still in this phase.
4) No, as said Malaysia is an old fashioned and highly regulated finance market.
5,6,7,8) The concept is same running a company business, you are the boss, you hired worker and paid the salary, no matter the business is profitable or not. Major complaint of this issue is from high initial service charge of 5-6% and annual management of 1.5%, which seems a bit high, more related to 8
9) Yes, it can be done and should be done.
Just my 2 cents.
May 15 2009, 04:00 PM
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