Indonesia to set tougher mutual funds rules-govt

JAKARTA, Sept 26 (Reuters) Indonesian fund managers will face stricter rules aimed at strengthening management in the growing industry, a senior official at the country's capital markets watchdog, Bapepam, said on Wednesday.

Policy makers in Southeast Asia's largest economy are seeking to develop a stronger mutual fund industry as part of efforts to widen the domestic investor base in the local stock and bond markets.

Djoko Hendratto, head of Bapepam's unit which oversees fund management firms, told Reuters the rules would require fund managers to improve internal controls, risk management and research, as well as information and technology infrastructure.

''The objective is to create industry standards so as the funds are managed professionally,'' said Hendratto.

Fund management firms in Indonesia often do not have enough managers or experts to cope with the growing needs of industry, putting pressure on managers who have to handle many funds.

''Is it prudent having only one expert managing eight to 10 funds investing in stocks? We also expect to address this capacity building issue,'' Hendratto said.

The agency expects to complete a survey to assess the management capability of the country's 109 fund management companies by the middle of December.

Indonesia's big fund management firms include PT Schroder Investment Management Indonesia, a unit of British fund manager Schroders and PT Manulife Aset Manajemen Indonesia, a unit of Canada's Manulife Financial Corp .

PT Fortis Investments, a unit of Belgian-Dutch financial group Fortis , is also a player in the domestic fund industry.

The move may prompt consolidation through mergers and acquisitions in the industry, fund managers said.

''It is likely that they are asked to merge if their infrastructure is not up to standards,'' Jakarta-based Michael Tjoajadi, president director of PT Schroder Investment Management Indonesia, told Reuters when asked what would happen to weaker industry players.

Fund managers said the move could help strengthen confidence in the industry which was hit hard in 2005 due to rising inflation following a sharp fuel price hike and worries over weak management in the domestic mutual funds industry.

Total assets under management fell to 28.4 trillion rupiah (