Sri Lanka’s fund management prospects ripe with aging workforce

ECNOMYNEXT – Sri Lanka’s aging society lacks proper savings schemes for people to manage their retirement, creating opportunities for professional fund management services, a senior analyst at a stock brokerage said.

Murtaza Jafferjee, Managing Director of JB Securities, said there was a low level of financial literacy in the island with most savings assets confined to banks.

“For the vast majority of people, their finances are a mess, living way above their means. We don’t have targeted, disciplined savings schemes,” he told an investment fund and asset management forum held by Fitch Ratings.

The asset management  industry in Sri Lanka is “very much in its early days,” Jafferjee said. “There is a serious opportunity out there.”

Sri Lanka’s population is aging with the average median age about 32-33 years now and moving up, and expected to rise to 35 years in 10 years’ time.

“The number of people above the age of 60 will be about 20 percent of the population and a lot of them don’t have a proper savings to manage their retirement,” Jafferjee said.

“So there’s a huge opportunity now and the government has been talking about creating a superannuation agency. Professionalised fund management is a dire need in the country.”

Jafferjee said there was a perception that savings must be guaranteed and most savers were wary of putting money in stocks.

“We are a risk-averse society. People got themselves burnt (investing in stocks). Some intermediaries have not been good.”

Although share investments by the state-managed pension fund created a scandal in 2011, most such funds were invested in safer but comparatively low-yielding government securities.

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“The reality is that our funds are massively under-allocated into equity which is a higher return asset class,” Jafferjee said.

The problem with the pension system is that it is government controlled and also lacks flexibility.

“So whether you are 25 years and starting your career or whether you are 55, the asset allocation is the same,” Jafferjee said. 

“So one potential reform, even if it is going to be one system, is that there should be about 2-3 different products and individuals should be able to decide based on their risk tolerance what kind of asset allocation they want.”  (Colombo/September 20 2015)
 

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