Magazine Issues » September 2012

ASSOCIATION COLUMN: The infant stage

Zulfiqar-AzamThe Ucits model has been a success in Asia and a similar model for Asian funds should be considered. However, in the near future this seems unlikely.

Countries from the European Union have been working together on various platforms for some time now, which has allowed them to make models such as the Ucits a success.

There is still a long way to be covered for the Asian countries, especially the western side of Asia, and with such opportunities ahead of us we foresee a bright future for Asia.

Asian asset management companies meet up regularly at the Asia Oceana Regional Meeting to discuss areas such as distribution, regulation and investors’ needs with respect to the rapidly changing environments.

Not many investors in Pakistan have invested in Ucits funds and are missing out on the benefits Ucits has to offer. The main reason behind this is that most of the investors currently have a tight budget since the recession hit the country and are also not aware of such lucrative investments.

Since the financial crisis, investors have become risk averse and are not experimenting with new and different investment products. During these tough times, the asset management companies came up with a new category for the mutual funds: capital protected funds.

For these, investors were guaranteed the principal amount invested and any profit earned would be returned to them. Until recently, investors had lost confidence in the equity market and were looking for investments that were government guaranteed or anything near AAA-rated securities.

The most successful instrument has been the money market fund, which invests in treasury bills and government securities.

Various investor awareness programs are being conducted in the country, especially in the major cities, to educate investors about the different available investment avenues locally and globally. With the increasing confidence of the investors, other opportunities are now being looked into.

Demand for Ucits is expected to increase in the next few years. Asia has a large retail base and some of the Asian countries have a developed economy. A substantial amount of Ucits funds are already held by Asian investors.

Pakistan’s mutual funds industry dates back to the 1960s. However, the industry witnessed a major growth in the past decade since asset management companies from the private sector were introduced.

The entry of the private sector saw the initiation of further continuing innovation in the mutual fund industry and these private sector asset management companies launched several categories of mutual funds, which gave prospective investors choices for investment in keeping with their investment objectives and appetite for risk.

We see ourselves still at the infant stage. New rules are been developed, existing rules are being amended and currently the mutual fund industry is in heavy consultations with the regulators and the government of Pakistan on various issues at different platforms.

Pakistan’s participants of the mutual funds industry are active in various regional and global areas. New models are being introduced and investors are being educated so that they are better equipped to make informed decisions. We are hopeful for a better future of the industry.

The Mutual Funds Association of Pakistan is the trade body for Pakistan’s multi billion rupees asset management industry. The money its members manage is held in a variety of investment vehicles – including stocks, bonds, money market instruments, government securities and bank deposits. The association’s role is to ensure transparency, high ethical conduct and growth of the mutual fund industry.

Zulfiqar Azam is a senior research analyst at the Mutual Funds Association of Pakistan

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