The Investor Sentiment - Equity and investments forum for Sri Lankans

Display results as :

Rechercher Advanced Search

Latest topics
» Happy Birthday
Today at 9:45 am by nihal123

Today at 7:22 am by CK

» HNB.N0000 ( Hatton National Bank PLC)
Today at 6:18 am by pjrngroup

» Thread for News on CSE and SL Economy
Today at 5:16 am by NIRMALSG

» අපිට විතරද පායන්නේ ?
Yesterday at 9:06 pm by malanp

» Tourism sector
Yesterday at 5:47 pm by NIRMALSG

» අනං මනං! #/+?.<>
Yesterday at 5:15 am by NIRMALSG

Sun Mar 24, 2019 5:04 pm by NIRMALSG

» Oman's Oil and Gas Minister Dr. Al Ruhmy arrives in Lanka.
Sun Mar 24, 2019 12:11 pm by Ethical Trader

» Help him Today, so he can help another Tomorrow
Sun Mar 24, 2019 8:01 am by spw19721

Sat Mar 23, 2019 6:37 pm by PANTOMATH

» Dividend Announcement
Thu Mar 21, 2019 9:26 pm by nihal123

» PLC.N0000 ( People's Leasing and Fiance PLC)
Thu Mar 21, 2019 11:15 am by Ethical Trader

» රෝගීන් වෙනුවෙන් කැප වන සෞඛ්‍ය සේවාවක් වෙනුවෙන්.....
Tue Mar 19, 2019 9:34 am by AjithR

Tue Mar 19, 2019 9:22 am by කිත්සිරි ද සිල්වා

» How Small We are in the universe
Tue Mar 19, 2019 7:29 am by nihal123

» ඉස්සරහට අපි පරදින එකනම් ෂුවර් – ධම්මික ක්‍රිකට් ගැන කතා කරයි
Fri Mar 15, 2019 2:59 pm by nuwanmja

» HAYL.N0000 Hayleys PLC
Thu Mar 14, 2019 2:46 pm by yellow knife

Thu Mar 14, 2019 10:57 am by slstock

Wed Mar 13, 2019 6:44 pm by serene

Sun Mar 10, 2019 8:36 pm by NIRMALSG

Sun Mar 10, 2019 6:40 am by ruwan326

» Mobile Trading: the new BUZZ word in Capital Markets Industry!
Thu Mar 07, 2019 5:58 pm by Brenda John

» MGT.N0000
Sun Mar 03, 2019 2:48 pm by Hawk Eye

Sun Mar 03, 2019 8:57 am by Jana1

» Should such people be trusted and help anymore?
Sun Mar 03, 2019 4:42 am by pjrngroup

» The messenger who couldn't deliver a message
Wed Feb 27, 2019 5:56 pm by Backstage

» SHL.N0000 (Softlogic Holdings PLC)
Wed Feb 20, 2019 8:23 am by ruwan326

» Importance of 2019 government budget
Tue Feb 19, 2019 12:13 pm by කිත්සිරි ද සිල්වා

» Emir of Qatar on a private visit to Sri Lanka till February 22
Tue Feb 19, 2019 11:19 am by Backstage

» දේවදත්තගෙන් අපායේ සිට මෛත්‍රී බුදුන් වහන්සේට එවන ලද ලිපිය...~~~
Fri Feb 15, 2019 8:24 am by ruwan326

» CONN.N0000
Wed Feb 13, 2019 8:09 pm by ruwan326

» SERV - The Kingsbury
Wed Feb 13, 2019 8:08 pm by ruwan326

Wed Feb 13, 2019 7:53 pm by ruwan326

» KVAL.N0000
Wed Feb 13, 2019 7:36 pm by ruwan326

» HAYC - Haycarb
Wed Feb 13, 2019 7:24 pm by ruwan326

» DIPD.N0000 (Dipped Products)
Wed Feb 13, 2019 7:22 pm by ruwan326

» මහජනතාව බල ගැන්වෙම්න් සිටී…
Tue Feb 12, 2019 8:23 pm by ruwan326

» VFIN - where the journey leads it?
Mon Feb 11, 2019 7:35 pm by ruwan326

» LFIN - LB Finance
Mon Feb 11, 2019 7:25 pm by ruwan326

» Sri Lanka urged to develop own narrative of China’s BRI
Mon Feb 11, 2019 2:50 pm by Backstage

» Wonder why men send photos of their genitals? Here are some theories
Mon Feb 11, 2019 11:01 am by Backstage

» Flying is the Safest mode of Transport
Sat Feb 09, 2019 8:12 am by කිත්සිරි ද සිල්වා

Thu Feb 07, 2019 2:24 pm by Ethical Trader

» Lanka named top tourist destination for 2016
Wed Feb 06, 2019 2:29 pm by කිත්සිරි ද සිල්වා

» A Bit of History
Wed Feb 06, 2019 2:18 pm by ruwan326

» AMF.N0000
Thu Jan 31, 2019 6:56 am by serene

» IOC Sri Lanka unit December quarter loss widens to Rs987mn
Mon Jan 28, 2019 11:02 am by ruwan326

» මූර්ත පොළියෙන් ශ්‍රී ලංකාව අංක 1ට – බ්ලූම්බර්ග් අනාවරණය කරයි
Mon Jan 21, 2019 7:18 pm by nihal123

» Obituary Notice.
Mon Jan 21, 2019 7:14 am by කිත්සිරි ද සිල්වා

March 2019

Calendar Calendar


Information posted in this forum are entirely of the respective members' personal views. The views posted on this open online forum of contributors do not constitute a recommendation buy or sell. The site nor the connected parties will be responsible for the posts posted on the forum and will take best possible action to remove any unlawful or inappropriate posts.
All rights to articles of value authored by members posted on the forum belong to the respective authors. Re-using without the consent of the authors is prohibited. Due credit with links to original source should be given when quoting content from the forum.
This is an educational portal and not one that gives recommendations. Please obtain investment advises from a Registered Investment Advisor through a stock broker

EPF needs governance overhaul, proxy advisor, to invest in Sri Lanka stock market

Go down

EPF needs governance overhaul, proxy advisor, to invest in Sri Lanka stock market

Post by The Invisible on Wed Oct 17, 2018 9:49 am

ECONOMYNEXT - Sri Lanka's Employees Provident Fund, a retirement fund of private sector workers managed by the state is about to re-enter the stock market, ending several years of inactivity after it came under fire for being a dumping ground for both stocks and bonds.

The EPF bought stocks at the height of a stock market bubble which peaked around 2011, earning the doubtful accolade of being the buyer of last resort in the stock market.

In 2015 and 2016 EPF dealers were involved in a bond fraud where they stayed away from direct auctions and bought bonds at higher prices from a company connected the then-Central Bank Governor's son-in-law.

Unlike 2011, stock valuations have hit rock bottom in 2018. This is without doubt a good time to enter the stock market.

But does the fund have the necessary skills and most importantly a robust governance structure to protect the interest of the EPF members? The answer is no, particularly on governance!

Mired in Conflicts

The EPF’s fund management is undertaken by the Central Bank under its Monetary Board, which is chaired by a Governor and several members including from the Treasury and private sector.

The members of the Monetary Board itself are riddled with multiple conflicts of interest. The Monetary Board is headed by the Governor, who amongst other things is responsible to raise money for the government by issuing Treasury bills and bonds.

In this role his objective is to raise money at the lowest possible interest cost to the government. EPF is one of, if not the largest, investor in government securities. The Treasury secretary itself is a member of the Monetary Board.

The EPF members' objective is to maximize the return on their funds.

How is this conflict managed by the Governor of the Central Bank? We can expect some ethical behavior from the incumbent Governor, but what will happen after he goes?

Other members are drawn from the private sector. The expansion of the Monetary Board from an earlier three members was supposed to reduce the concentration of power, bring in a private sector perspective and also bring balance by moderating the role of the Treasury.

But has this happened? There are concerns that non-ex-officio member have come with their own baggage adding further conflicts of interest to an already murky pot.

The current poor level of transparency of EPF’s activities is completely unacceptable. The EPF does not publish quarterly accounts in a timely manner, which can be accessed by members in the same way detailed annual reports are prepared by the large banks and financial institutions.

Only the 2016 annual report has been published in the EPF web site as of today.

The EPF does not hold annual meetings, where members could question the management and the Board (in this case the Monetary Board).

Way forward - A member’s suggestion on EPF reform

The way forward would be to re-organise the EPF in a way similar to pension funds in developed countries. It is understood that the Ministry of Labor has sought the assistance of the Asian Development Bank, to reform the EPF and a White Paper has been prepared.

However, this is not been shared with the EPF members despite requests made under the RTI Act to the Ministry of Labour & Trade Union Relations.

Why is the secrecy?

The secrecy could raise suspicions that interested persons are again trying to mis-use the EPF with elections close at hand. Already the Perpetual scam, where even government ministers have got housing benefits has created a negative perception among members and trade unions.

Competition - with transparency

A small portion of the EPF funds should be carved out and given to professional fund management firms to be managed under a transparent process under a proper investment mandate and a fund management agreement.

The fund managers should report their performance every month to ensure competition and transparency, similar to the current practice in the Unit Trust industry, where the performance is reported on a daily basis.

The performance of the professional fund managers can be used as a benchmark and bring in competition and professionalism into the current fund management process at the EPF.

Member Communications

The EPF should publish quarterly financial statements like any other listed company in Sri Lanka and have annual meeting for members.

Most global investment funds publish their holdings every month. A large international which bought rupee bonds for example use to publish their holdings every month. It is ironic that the EPF does not.

EPF should also publish their holdings of stocks every month, so that members can monitor changes. Unlisted stocks should be published separately.

This can be done for bonds.


The governance needs to be overhauled.

A separate Board should be established for the EPF, consisting of a majority of independent Directors representing the members rather than the interests of the Government of Sri Lanka.

The Directors should not have multiple conflicts of interest similar to the current situation.

Given recent developments, seeing person who are seen as friends of politicians being appointed as members of the monetary board does not inspire confidence.

Quite apart from being the Board responsible for EPF, it is not best practice for the central bank either.

A Presidential Commission of inquiry has already suggested that the Governor be appointed by the Constitutional Council.

The EPF Governing Board could also go through a similar process.

Proxy Advisors and EPF’s voting rights

In the past, the voting rights on the shares held by EPF have been used to appoint family and friends of the political leaders' as director of investee companies.

There has been not much difference under the current regime which came promising good governance.

The global best practice is for Pension Funds to use their voting rights based on the independent professional advice from proxy advisors.

Unfortunately, there are no such companies in Sri Lanka. But there are such companies in India already.

Institutional Investor Advisory Services India Limited (IIAS) is a proxy advisory firm, which provides Indian market with independent opinions, research and data on corporate governance issues as well as voting recommendations on shareholder resolutions.

Its shareholders include Axis Bank, Fitch Group Inc, HDFC, ICICI Prudential Life Insurance, Kotak Mahindra Bank, Tata Investment Corporation, UTI Asset Management Company Limited and Yes Bank. It is a registered research entity at the Securities and Exchange Board of India.

It provides voting recommendations for over 600 companies where there are large institutional holdings.

The EPF can get the services of a proxy advisor from India or some other country. Assistance could be sought from outside the country to set up a unit in Sri Lanka, the same way Fitch (then CBR) was set up in Sri Lanka to start ratging.

Such firms may help other institutional funds as well.


Fundamentally, EPF should invest in the equity market provide growth for its members, in fact it should have a larger proportion of the assets invested in the market, similar to the portfolio mix of pensions funds in other markets.

In some developed markets public pension funds also invest heavily in real estate. A study by Willis Towers Watson, actuaries found that equity forms more than 30 percent of assets of pension funds in major markets.


The EPF should be one of the largest shareholders in the country so that workers can have a share in the companies that drive growth

However, first has to put the policies, procedures, people and get the governance right. By improving transparency and publication of investments, an automatic check will be made against fraud and bad decisions.

In the current context, where the EPF membership does not have confidence in the management of the fund, the EPF needs to get its house in order, particularly governance, before embarking on yet another potentially disastrous adventure of investing in the stock market and bond trading.

Failure to do so will end up with the consequences being borne by the EPF members, who will see their retirement savings evaporate overnight.

As always the decision makers will escape scot-free without being held accountable, and will share in the spoils.,_proxy_advisor,_to_invest_in_Sri_Lanka_stock_market-3-12226-2.html
The Invisible
The Invisible

Posts : 878
Join date : 2016-11-28
Age : 39

Back to top Go down

Back to top

Permissions in this forum:
You cannot reply to topics in this forum