The Concept of Mutual Fund Industry came into Pakistan in 1962 with the establishment of National Investment Trust by Government of Pakistan in collaboration with Private Sector. Mutual Fund Industry of Pakistan has shown remarkable performance both in terms of number of funds as well as funds under management during the last 5 years. From an approximate size of Rs25 billion in 2000 with few funds in operation, the industry has grown to over Rs. 330 billion in 2008 with 85 funds (including closed end) presently in operation. The size of open end mutual funds grew by 315 per cent from Rs. 68 billion in 2004 to Rs. 285 billion in 2008. The driving forces behind enormous expansion of the industry during the last five years may be accredited to economic growth, boom in stock market, introduction of new asset management companies, and launching of variety of funds catering to the needs of the investors. When stock market was at peak in April 2008, Net Assets of Mutual Fund Industry ascended to about Rs. 390 billion.
MF: Mutual Fund Industry has so far relied on institutional investors, making it rather an Institutional Fund Industry. How long will the industry take to have at least 50 per cent share of retail investors?
MANZOOR: I agree with your point of view that mutual funds have so far heavily relied on institutional investors. However, in case of NIT around 25 per cent investors are individuals whereas remaining 75 per cent is represented by institutional investors. Lack of awareness about the benefits of investing through mutual funds is the basic reason for slow growth of retail investors. Furthermore, most of the investors prefer to continue with their existing avenues of investment because either they are risk averse or simply they don't have time to shift their savings at the higher rate of return with mutual funds. In order to achieve target of at least 50 per cent share of investment by individuals, Mutual Funds would be required to go for aggressive marketing. Although, Mutual Fund industry has picked up momentum but in order to create more awareness in general public about benefits of investing through mutual funds and facilitating busy individuals, the marketing force of each & every fund will have to personally approach individuals. There is likelihood that in next five to ten years retails investors surpass institutional investors.
NIUT growing by leaps and bounds!
The Trust has witnessed an excellent growth in net assets rising from Rs. 50 billion in 2004 to Rs. 85 billion in 2008 despite cash payout to unit holders as dividend. As of 30th June 2008 the size of NIUT is around Rs. 85 billion which is almost 30 per cent of entire Mutual Fund Industry and 75 per cent of Equity Funds. NIT outperformed its benchmark of KSE-100 Index by 4.4 per cent in 2007-08. Market has already plunged 20 per cent from its level as of 30th June 2008 and has already adjusted to the weak macro economic indicators, rise in interest rates and other factors. Now further downside adjustment appears limited. I personally feel that the nightmare is almost over. Restructuring of investment portfolio which resulted in improved quality of portfolio; largest network; investments with long term perspective; and of course boom in stock market are some of the key factors which contributed a lot towards the growth of National Investment (Unit) Trust.
MF: Tightening monetary policy is expected to mar the investment activities bringing economy to standstill. Keeping in view the objectives SBP wants to achieve, how do you access the policy's net implication on the economy?
MANZOOR: I don't think that the tight monetary measures would mar the investment activities and bring economy to standstill. Inflation has already eroded the purchasing power of individuals and turned the return on their investment into negative zone. I perceive positive implications of tight monetary measures in the long run but it would also depend upon how we tackle the other challenges facing the economy. These measures may cause short term pains but would ultimately bring long term gains.
GDP target for FY09 is feasible
Pakistan's economy has performed very well during the last 5 to 6 years with average GDP growth rate of 6.8 per cent. Last year GDP growth rate was 5.8 per cent whereas the GDP growth target of 5.5 per cent has been set for FY09. Currently there has been an economic slowdown across the world owing to rising oil and commodity prices. Since Pakistan imports 80 per cent of its total oil consumption, therefore, the oil prices have hit our economy very hard causing external account deficits and unprecedented rise in inflation. However, once the oil prices fall and come to a reasonable level, it would reduce trade/current account deficits thereby reducing government's budgetary borrowing and bringing stability in interest rates. As a result, Pakistan's economy is expected to be back on track. The focus of the government on agriculture sector which constitute 21 per cent of GDP is also likely to help achieve the GDP growth target set for FY09.
MF: Being the most influential fund manager of the industry, what is your forecast about the industry's growth dynamics?
MANZOOR: I foresee a huge growth potential for Mutual Fund Industry of Pakistan. Pakistan's mutual fund industry outpaced World mutual fund industry during last five years, with an average growth of 50 per cent p.a. as compared to 15 per cent p.a. recorded in world mutual fund industry. Despite all the growth in the mutual fund industry during the last five years, assets under management are still merely around 8.5 per cent of Bank Deposit as compared to around 15 per cent in India and above 160 per cent in USA. Similarly, Asset under Management to Market Capitalization ratio is also around 8.5 per cent. With the passage of time, the funds would flow from low yielding bank deposits to mutual funds which would give further boost to this industry.
MF: Despite the introduction of Market Support Fund, KSE 100 Index is hanging in balance. In your perspective, what are the underlying factors behind the market plunge and what needs to be done for the stabilization of capital markets in Pakistan?
MANZOOR: Decline in stock indexes has been observed in almost all stock exchanges of the world including emerging markets. There is a world economic slow down mainly due to soaring inflation which is attributable to rising oil and other commodity prices. Pakistan is no exception. In addition to rising oil & commodity prices, Pakistan is also facing challenges like political uncertainty and law & order situations. Furthermore, monetary measures taken by the central bank including increase in benchmark interest rate has put more pressure on stock market. Stock Market is basically adjusting to all these conditions. Now it is time for institutional investors to play their role for stabilization of capital markets in Pakistan which would help enhance the confidence of local as well as foreign investors.
NIT is taking all possible steps for stabilization of capital markets of Pakistan.
NIT - Market Opportunity Fund was launched on 25th July 2008 and since then it has been investing to capture the untapped opportunity of low volumes and bringing stability in the market.
NIUT: The largest and the impressive!
The National Investment Trust Limited was established in 1962. It is not only the largest mutual fund in the country but also the largest single investor on the Karachi Stock Exchange. The total size of the fund as of 30th June 2008 is around Rs. 85 billion invested in about 460 companies with investment in almost every sector.
During the last couple of years NIT has witnessed a complete turnaround in its performance. NIT was declared the best performing mutual fund of the country by MUFAP in 2004. The Net Asset Value of NIT unit has increased from Rs. 10.89 as on June 30, 2002 (Ex Dividend) to Rs. 52.58 as of June 30, 2008 depicting a phenomenal growth of 383 per cent in just 6 years.
For FY08 NIT declared the record high dividend of Rs. 6.50 per unit as compared to Rs. 1.20 per unit that was paid by the Trust for the year 2001-02 which shows a remarkable growth of 442 per cent.
MF: Attracting retail investors is the next big challenge for the industry. What strategy should be adopted to encourage the burgeoning middle class towards mutual funds?
MANZOOR: Creating awareness among the general public about benefits of investing through mutual fund, confidence building measures, aggressive marketing to reach out prospective investors and introduction of new products may attract the retail investors to mutual funds.
The more the investor would know about the benefits, the more money would flow into mutual fund industry. Since, general public is not well aware of functions of Mutual Funds, they prefer depositing their savings in banks rather than investing through mutual funds despite the fact that they might be earning negative returns.With leadership comes responsibility and NIT understands it well!
In mutual fund industry return is magnet to the investors. It is the return which attracts the investors. In order to provide the superior return to investors in financial sectors, the quality of human resource is of utmost importance. High quality human resource ensures high quality return to investors. NIT being leader in mutual fund industry always acts with great responsibility. Since general investors usually follow NIT being the leader of the industry, therefore, we have adopted a policy of not selling in the falling market which may further put pressure on market and can hurt the interests of investors including that of NIT's unit holders. NIT also takes lead for the development of corporate sector, corporate governance and development of mutual fund industry.
MF: Real Estate Investment Trust (REIT) has not either appealed to AMCs or the requirements are too stringent to make it an attractive venture. In your view, what are the reasons behind the halt of REITs Penetration in market?
MANZOOR: REITs concept is being introduced first time in Pakistan. As far as stringent requirements are concerned, regulators have safeguarded the interests of investors keeping in view the local conditions. So granting permission after thorough scrutiny and fulfilment of stringent requirements is much more preferable than to be happy with the simple increase in number of REITs. Furthermore, introduction of new avenue for investment and its ultimate acceptability by investors always take time.
Privatization is delaying NIT expansion
NIT is already the largest Fund of the Industry. Now NIT has been assigned the responsibility of managing NIT Market Opportunity Fund which has already expanded its family of Funds. I see an excellent & promising future for NIT. It has shown tremendous performance in the past. It has the ability to capture the huge untapped potential of mutual fund industry of Pakistan but long looming privatization of this Fund has hurt its further growth badly. This issue needs to be addressed promptly and prudently to let this Fund operate with its full strengths to capitalize the available opportunities. However, in order to compete and expand, the quality of human resource on market based salaries and compensations in line with domestic and international practices and norms would be of paramount importance.
MF: How do you access the role of regulatory bodies in facilitating the industry, what actions on part of SECP and other bodies can enhance the shock absorbing capacity of Mutual Fund Industry amid uncertain outlook of financial markets?
MANZOOR: Regulatory bodies like Securities & Exchange Commission of Pakistan & State Bank of Pakistan are now quite different than they used to be in the distant past. They have strengthened the regulatory framework during the last couple of years. Comprehensive Non Banking Finance Companies & Notified Entities Regulations and stock market reforms were introduced by Securities & Exchange Commission in 2007-08. All these measures have improved the level of transparency and protection of investors thereby enhancing confidence of investors. I think there is a general shortage of human resource in Pakistan; hence, these regulatory bodies need to further strengthen human resource.
Equity stocks have become all time attractive in current scenario
High inflation during last two years has turned real returns negative. Investors need to be protected against inflation. Suitability of investment avenues depend upon the risk & return preferences of individual investors. Money Market & Income Funds may be considered suitable for risk averse investors. Balanced Funds are usually designed for medium risk takers, whereas Equity Funds may be considered suitable for those individuals who have ability to bear medium to high risk with long term horizon. At present, Pakistan's Stock Market is trading at a P/E multiple of 7X and the dividend yield has gone attractive at 8 per cent. So the equity investors with long term view are expected to earn a good return.
MF: Why is NIT not expanding the fund family to broaden various untapped asset classes when other AMCs have aggressively increased their fund basket?
MANZOOR: Since last ten years or so NIT has been under privatization. This process went to the level of due diligence and pre-bid conference in 2006 but the transaction could not be completed due to one reason or the other. Under such circumstances it was not prudent and advisable to launch new funds. However, recently NIT has launched a new Fund namely NIT - Market Opportunity Fund but this is in the same asset class. Once the privatization issue is resolved, NIT would be in a position to take steps and launch new Funds in different asset classes to increase its family of Funds.