Commentary: Fund managers tapping MAS’ $5b boost for markets should step up to promote good corporate governance

Date: April 23, 2025

First published in Straits Times on 21 April 2025

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.

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.

The Asian Corporate Governance Association’s (ACGA’s) Corporate Governance (CG) 2023 Watch for Asean titled Spectrum of standards: Regulators set the tone on CG progress’ that was issued in June 2024 noted that it was retail investors which continued to uplift CG standards in Singapore, “in contrast to their institutional peers who remain a more muted bunch’’.

“Retail shareholders are more visible at AGMs and in their voting, with participation generally higher across the board, thanks to organised efforts,” noted ACGA.

That money managers are relatively passive players versus their retail counterparts is not new. In a 2007 paper titled Improving the Implementation of Corporate Governance Practices in Singapore, well-known corporate governance advocate Mak Yuen Teen noted: “In Singapore, institutional shareholder activism remains at a nascent stage of development, with very few institutional investors actively engaging with companies, participating in shareholder meetings, and voting their shares.

“This has contributed to the lack of market enforcement of the ‘comply or explain’ approach in Singapore.”

Among the measures recommended to rectify this was that “more pressure should be placed on institutional investors and fund managers to discharge their fiduciary duty to beneficiaries and to be more transparent in their shareholder engagement policies”.

It appears that although around 17 years had passed between the two studies, little had changed.

This gels with anecdotal experience – although we regularly hear of retail shareholders taking their managements to task or trying to convene extraordinary meetings to block controversial corporate proposals, the only episode in recent history of institutions challenging the status quo involved the institutional investor in Singapore’s Sabana Reit, who took the Reit’s management to task during the best part of 2020 and 2021.

The same institutional investor was also notably active during 2023 in respect of the proposed merger between Mapletree Commercial Trust and Mapletree North Asia Commercial Trust.

Other than these incidents, there have been no reported incidents of fund managers playing prominent roles in enforcing good governance, which is a shame, given the financial muscle these investors can exert.

One possible reason for relative institutional apathy is the rise in popularity of passive investing via exchange-traded funds, which might prompt funds to simply buy and hold index components with little interest in how those companies are run.

Another is short-term thinking, which was identified as an issue in the OECD’s 2011 report, The Role of Institutional Investors in Promoting Good Corporate Governance, where it said: “A key policy issue concerning institutional investors concerns whether they are only short-term investors, or at least promoting short-term thinking by boards and managements. The case of pension funds, especially defined benefit schemes, is often cited where in principle their liabilities to their beneficiaries stretch over many years. Despite this, they very often issue short-term mandates to their investment managers who in turn have their own short-term incentive systems.”

Whatever the case, if institutions are going to benefit from the MAS’ $5 billion fund, then it’s only reasonable to expect more of them to play a greater part in ensuring good corporate discipline rather than rely on their retail counterparts.

If they do, problems such as these which were highlighted by the ACGA for the Singapore market might be mitigated: “Board governance reporting leaves much to be desired among the issuers we surveyed. Most follow the same template, with a long list of bullet points setting out in the most general terms what the function of the board is, and the roles and duties of the committees.

“No narrative is given on tangible topics discussed by the board in a given year (the fact that the board scrutinises financial reports is something we do not need to be told), leaving the impression that there was little on the agenda beyond compliance.

“Director bios are the standard description of qualifications and experience, and fail to make a connection as to why this person is a particular fit for the role.”

Perhaps one way to incentivise fund managers to play their part in uplifting governance is to make investing in companies with good governance scores a prerequisite before granting access to MAS’ $5 billion fund. It’s certainly worth thinking about.

• The writer is Mr David Gerald, Founder, President and CEO of the Securities Investors Association (Singapore)