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Investment management is ageing, but not maturing

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By Muzammil Aslam.

Pakistan Stock Exchange has been in a bearish zone for the last 22 months, which is the most prolonged bearish period ever witnessed by KSE since its inception. Even after four months of market freeze in 2008, value investors found their way out within 12 months of crisis and stock markets witnessed a bullish trend for 8 straight years.

Similarly, before 2008 financial crisis, equity markets witnessed an incessant bullish trend from 2002 to 2008. That was the period when Mutual Fund Industry started to take over by the big banking franchises, namely National Bank, Meezan Bank, United Bank Limited, MCB Bank, JS Bank and KASB. Moreover, due to dearth of human capital availability- most of the AMCs had to rely on young inexperienced graduates to run the business.

The booming capital market at that time had overshadowed the lack of experience and depth of fund managers, and gave success to all money managers initially. However, within a couple of years’ time, a mediocre experienced personnel’s pay packages had outperformed all other industry peers, due to easy money availability and huge accumulation of AUMs by the industry.

Consequently, the feel-good environment made inexperienced personnel more confident and greedy. Every Tom, Dick, and Harry was so busy in subscribing to new TFCs or IPOs without digging into the details of the company in particular and economic fundamentals in general. There was hardly any focus on risk and compliance of the companies and regulators at that time. In short, Fund managers were the king and nobody understood the concept of overheating and its economic repercussions.

However, when Economy suddenly embraced the bear-steepening yield curve (long dated bonds yields increasing faster than short-dated treasuries) and the outlook for inflation and Government borrowing was worsening, the fund managers felt trapped. Resultantly, market was shut down for four months and Asset Management Companies froze their redemptions. Exactly ten years prior to this, the Government had frozen the capital account and restricted all the foreign repatriation.

So, what did our managers learn from past?

I guess we all are still at the same level as that of 2008. The plausible reasons are that the senior fund managers of that time moved out of the country, which means that the current lot of fund managers are mostly again young and inexperienced with fond memories of last eight years of bullish trend. However, the big bosses of all these Investment Management are same and still commanding their companies.

As a broker with a profound experience of dealing with all the companies, I witnessed a huge backwardness in their approach. They are still not using the technology in order executions and still lack ability to counter the bear market woes. More interestingly, their approach is still short-term. They hardly particulate in investors conferences and have limited access to Corporate. They are shy of meeting government officials and are all trained to outperform peers not for value maximization of investors’ wealth. Take today’s example, AMCs and insurance companies are keeping track of their competition investments and trying to undermine/ manipulate their NAVs through artificial means.

Where is regulator?

Unfortunately, the focus of regulator is not on market development, but on over regulating the market to save it from another freeze. It has played a huge role in minimizing the size of the market due to 2008 nightmare. While no market has ever developed without participation of foreigners, our regulators have not encouraged foreign brokers and foreign AMCs to enter into Pakistan. Even the closed market of Saudi Arabia are working with local companies. The reason of backwardness in our AMCs and Brokerage business is solely the lack of exchange of human capital from developed market. The advantage of all this went to foreign investor, who took exit at the peak of market 53,000 index and are still indulging in selling. On the other hand, our local investment companies and insurance companies gave them exit at peak and are now giving them an opportunity to enter at bottom. It’s high time to evaluate the competence of both local institutions & regulators.

* The opinions in this article are the author’s and do not necessarily represent the views of Mettis Link News (MLN).

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Posted on: 2019-05-05T16:35:00+05:00

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