Asset managers to lose licence for failing to manage funds: BSEC
However, new entrants must bring their first funds to the market within three years of obtaining their licences.
Asset managers will lose their licence unless they operate at least one mutual fund within a year from the date of the directive issued by the Bangladesh Securities and Exchange Commission (BSEC) on Monday (18 December).
However, new entrants must bring their first funds to the market within three years of obtaining their licences.
The stock market regulator is primarily targeting inactive asset management companies for the benefit of investors and the development of the securities market, as stated in the directive.
A senior BSEC official told The Business Standard that initially, the commission will withdraw the quota facility in IPO shares for those who fail to comply with the directive.
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"If the situation does not improve, the regulator will revoke the licence," he added.
According to a source, the BSEC has recently identified 27 inactive asset management companies. These companies currently benefit from the quota facility in initial public offerings (IPOs) and qualified investor offers (QIOs) in the capital market, being categorised as qualified investors.
So far, the BSEC has granted 64 licences to asset management companies, of which only 37 manage both open-end and closed-end mutual funds.
IDLC Asset Management reports that the first mutual fund was introduced by the Investment Corporation of Bangladesh (ICB), a public sector financial institution, in 1980.
Private companies began entering the industry in 2000.
There are currently only 37 closed-end mutual funds and 87 open-end mutual funds in Bangladesh, with total assets under management, as per market prices, amounting to approximately Tk11,295 crore as of June 2023.
While closed-end mutual funds are actively traded on the stock exchanges, open-end funds are not eligible for trading.
Insiders in the market have noted that the mutual fund industry has struggled to instil confidence among investors due to its failure to generate substantial returns over the past decade.
This lack of confidence is deteriorated by a liquidity crisis, an insufficiently skilled workforce and leadership, inadequate disclosure practices, and a lack of goodwill.
Additionally, recent incidents of fund embezzlement by asset managers have further shaken investors' confidence.
The BSEC found that Alliance Asset embezzled around Tk45 crore and Universal Financial Solutions embezzled Tk250 crore. As a result, some companies failed to secure funds and are now facing challenges.
According to the Dhaka Stock Exchange, the issued capital of mutual funds is Tk5,484 crore, but the market cap is only Tk3,746 crore.
A top official from an asset management company said there is negative propaganda in the mutual fund industry, leading many institutions to lose interest in entering the sector.
As a result, newcomers encounter challenges in creating funds and establishing confidence. Despite the regulator's efforts to minimise complexity and improve the sector, challenges persist, he added.
In addition, there is a lack of sufficient skilled workforce and leaders to manage the numerous asset management companies. Additionally, industry insiders note that many sponsors obtained licences without serious planning and vision.
