Recognizing Progress, Encouraging Accountability: The CFA Society Sri Lanka Unit Trust Award Framework

The Best Unit Trust Fund award was first presented at the CFA Society Sri Lanka Capital Market Awards back in 2016, with the objective of recognizing and rewarding fund management companies that place unit holders' interests first, whilst providing adequate disclosures to existing and prospective unit holders to make informed decisions, adopting strong risk management and compliance practices, and implementing best practices in asset management including research which contributes to effective investment decisions.

Today, the unit trust industry in Sri Lanka, while smaller compared to regional peers, has seen notable growth amidst a favourable interest rate environment over the past two years and a rebounding stock market, surpassing Rs. 550 billion in assets under management (AUM) - which corresponds to approximately USD 1.9 billion - with many new entrants, and the number of units issued having doubled in 2024.

Ruvini Fernando - Chairperson of the Best Unit Trust Fund Award Committee - observes strong progress in the adoption of robust governance and compliance practices across the industry, with a number of companies becoming Global Investment Performance Standards (GIPS) compliant over the past few years.

“Companies have also improved the quality of information disseminated to clients and are engaging more actively through various methods of communication to provide regular market updates. Some companies have also enabled secure online subscriptions and redemptions, offering greater convenience to retail investors. Furthermore, it has been encouraging to witness growth in the retail investor base across most funds,” she remarks.

As a point of improvement for the wider unit trust industry, particularly for new entrants, Fernando encourages companies to make their monthly fact sheets, quarterly earnings reports and annual reports available on their websites, particularly to improve access to data for the wider public. Moreover, she urges management companies to provide more insights on their perspective of the market, discussing different products available through the company and a high-level understanding of their investment strategy.

Fernando adds: “With the need for active participation by retail investors, such information would be useful for a new retail investor looking to invest in the unit trust market and to improve awareness about capital market investments in general.”

In her view, literacy around unit trust products among the wider public remains low, particularly when it comes to understanding how unit trusts can support saving for key life needs such as education, healthcare, and eventually, retirement.

“The unit trust industry has an opportunity and a responsibility to raise awareness and empower individuals to make informed long-term investment decisions,” Fernando avers.

With sustainability becoming a focal point within the investment landscape, she argues that the industry can also play a key role in driving capital towards responsible and impactful initiatives such as green bonds and environmentally conscious companies, with these funds both supporting industries in need of capital while appealing to younger investors.

Fernando states that the introduction of the Best Unit Trust Fund award has evidently created a culture of transparency, governance, and wider disclosure levels in the industry: “Unit trusts are implementing more initiatives to engage retail investors and practicing better dissemination of information. In particular, companies that have taken part in the CFA Society Sri Lanka Capital Market Awards have really stepped up over the years, showcasing exceptional disclosure levels and compliance standards.”

Applicants are evaluated for the quality of disclosures and availability of information to the public, and investment management, risk management, and compliance processes and practices. The Best Unit Trust Fund Award Committee also considers returns against appropriate benchmarks for the period. These evaluations are carried out through publicly available information and documents requested by the committee, followed by a presentation to the committee covering the investment process, operations, and compliance and procedures.

In order to encourage more active participation in the awards, the CFA Society Sri Lanka Capital Market Awards has also introduced a new entrant award for unit trusts that have been in operation for between three and five years, to recognize their efforts and performance.

Fernando also encourages more unit trusts to participate in the awards process in order to benchmark themselves against industry best practices, enhance transparency, and build greater trust with investors for the industry.

CFA Institute is the global association of investment professionals that sets the standard for professional excellence and credentials with more than 200,000 charterholders worldwide across 160 markets. Founded in 2001, CFA Society Sri Lanka is a not-for-profit organization supporting the professional development and advancement of CFA charterholders and candidates in Sri Lanka. Its membership of over 250 members consists of CEOs, CFOs, portfolio managers, equity analysts, banking professionals, investment advisors and other senior-ranking financial practitioners, and over 300 candidates, primarily from the financial sector.

Image Caption : Ruvini Fernando - Chairperson of the Best Unit Trust Fund Award Committee, CFA Society Sri Lanka