A lawmaker on has underscored the need to pass a legal framework for collective investment schemes (CIS) to make it easier and cheaper for working Filipinos to invest in legitimate securities.
At the recent House Committee on Economic Affairs hearing, Albay Rep. Joey Salceda said investors need to shell out significant amounts of cash to make investments in “clunky” assets such as real estate or businesses because existing laws do not expressly provide for CIS.
A collective investment scheme is an “arrangement where funds are pooled for the purpose of investing in securities and other investments.”
“Our assets tend to be ‘clunky’. In finance, we call this asset divisibility. The idea is that assets can be divided into infinitesimally small units so that the smallest retail investor can participate in investing an asset. Because we do not have a legislated CIS framework, most of our assets cannot be divided among smaller investors,” he pointed out.
“In short, if you are a retail investor, it’s expensive to get started. Furthermore, retail investors tend to invest individually, and therefore speculatively. Individually, it is also expensive to get a personal fund manager who can make more intelligent decisions for the average investor,” he stressed, pointing out that this entry barrier is the very rationale for a framework for investing collectively.
“This is why we need a stronger, broader market for collective investment schemes. Collective investment schemes reduce the fixed costs of fund management and administration,” he said.
Salceda said the ground rules must be set, particularly outlining the duties and responsibilities of the fund manager, establishing certain parameters regarding the management and decision-making for the fund, and delineating custodianship arrangements.
The House panel, during the hearing, created a technical working group to fine-tune the proposal.