INTERVIEW SYED AJAZ AHMED

Head of operations, Arif Habib Investments

SADAF AURANGZAIB
July 30 - Aug 05, 2007

The Arif Habib Group ranks amongst the fastest growing financial services provider in Pakistan today. Managing assets in excess of PKR.37 billion (US$ 617 million), the Group holds interests in the securities brokerage, investment and financial advisory, investment management, commercial banking, commodities, private equity, cement and fertilizer industries. We met the Executive Vice President, Head of Operation and Company Secretary, Syed Ajaz Ahmed of Arif Habib Investments, and took his views on the investment opportunities that are available with AHIM.        

PAGE: Tell us a bit about Arif Habib group? How long have you been associated with it?

SAA: Arif Habib group is a well established group in financial sector. The holding company of the group is Arif Habib Securities Limited, a public limited company listed on all three exchanges. Due to excellent management the company has made profits in every year since its incorporation and has been awarded the 'Best 25 Companies' award for each year since listing.

The group includes Arif Habib Investment Management Limited, Arif Habib Limited, Arif Habib Bank Limited, Arif Habib DMCC, Dubai . In addition, the group has strategic investments in cement, real estate and fertilizer companies.  

PAGE: When did the Arif Habib Investments establish and what was the real impetus behind it?

SAA: Arif Habib Investments was established as a public limited company in the year 2000 and obtained license from SECP as an asset management company and investment adviser. The Company had offered two open-end funds in 2002 with a seed capital of Rs.500mn. Presently, the company is managing six open-end and three closed end funds having total funds under management of more than Rs.23.0bn. The impulsion behind offering the open end funds was the vacuum in the capital market. There were no open end funds at that time except one was in public sector and one was in private sector which was not very active at that time.

PAGE: What are the instruments of investments do you usually work with?

SAA: We have different funds which have different policies and invest in different classes of assets that include shares, TFC, CFS, PIB etc. Moreover, one of our fund is a shariah compliant fund which invests in Islamic products and two of our funds are allowed to invest outside Pakistan .

PAGE: Arif Habib Investment mainly deals with the mutual funds, how do you see the competition among the mutual funds being offered by different companies and what benefits one gets while investing in Arif Habib investment?

SAA: Presently 20 companies are offering 46 open end funds. Most of the asset management companies are offering income funds and equities funds i.e. 25 funds in these two categories. However, most of the companies are not offering full range of products. I think there is a big cake available to share. Five years ago, people generally did not know about mutual funds. Now after having so many companies there is a little knowledge about mutual funds. In the past, public was scared in investing in mutual funds due to so many scams in financial sector. Therefore, we are pleased that after having more asset management companies at-least there is more awareness about mutual funds. We take this competition more positively. We have a big population and we can cover more ground in future.

As far as Arif Habib Investments is concerned, it offers various products for investors which cover needs of every investor. The Company follows strict compliance and transparency standards that includes regular compliance audit by external auditors, cut off time discipline, daily mark to market of all funds' portfolio, monthly fund managers' report and units redemption facility through ATM cards. These options are rarely offered by other funds managers here in Pakistan .  

PAGE: What is the minimum investment in Arif Habib Investment?

SAA: In our open end funds the investment account can be opened by depositing Rupees 5,000 only and subsequent investments could be made as low as Rupees 1000 only.

PAGE: How do you manage the risk that is involved in equities investment, what are the recovery measures that are used by your company in view of any crashes in the market?

SAA: The risk is managed through diversification. NBFC Rules which governs the mutual funds prescribe a per company investment limit of not more than 10% in shares of one company and not more than 25% of total Net assets of the fund in one sector. In addition to that the Board of Asset Management Company has imposed certain exposure limits for brokers and banks. The credit rating limits are also prescribed for money market instruments. In stock market funds we invest in those shares which are trading are at lesser price as compare to the fair value worked out by our research team. For money market funds the average life of our portfolio always remains less than three years. The short term correction in market does not affect our investment policy however; when we feel that there is a down turn in the economy in longer term, in that case we change our investment strategy. 

PAGE: How is the overall performance of the mutual funds and which one is the best to invest with the lowest risk attached?

SAA: Performance of mutual funds has been impressive and proves that investing is best left to professional money managers as the business of investing is growing ever-more demanding.

The performance of Pakistan Stock Market is very impressive since its inception — PSM and UTP are the only two private sector mutual funds that have been in existence since five years or longer ñ all other equity funds are very new. PSM has out-performed the market over the longer-term, since its inception in March 2002; it has delivered a total return of 642% as compared to the KSE-100 Index's total return of 632%. PSM's sharp ratio: return per unit of risk taken by the fund is greater than the KSE-100 market index: PSM 1.08x versus 0.94x.

Longer-term performance is a fact that is over-looked by investors when they focus on short-term gains and momentum-based investing, that looks exciting but is the main reason why individual and often institutional investors make mistakes. What is more important is longer-term sustainable performance, based on fundamentals, which is a corner-stone objective of our fund management.

PAGE: How do you see the investor's growth and the growth of portfolios in Arif Habib Investment?

SAA: AHIM started with funds under management of RS 500m in 2002, in a little over five years, our funds under management have grown by almost 50 times, 47 times to be precise to Rs23.6bn — spread over six open-end funds and three closed-end funds.

We have a total Investor-base of around 28,000 investors, a sizeable number, with Open-end investors around 18,000 and Closed-end investors about 10,000 in number.

PAGE: How do the occasional Stock Market crashes affect the overall strategic plan of yours?

SAA: The stock market is a volatile place by nature and any good fund manager changes his strategy according to the prevailing and future market conditions. Capital market volatility and coping with it is a given in the fund management business. A good fund manager makes money for his investors in all kinds of market situations.

PAGE: What is the future outlook of Arif Habib Investment?

SAA: Total returns over the long term must be consistent and we take our fiduciary responsibility very seriously. Our track record speaks for itself ñ in terms of our Group reputation and professionalism.

AHIM is an important part of the Arif Habib Group ñ the Group's fiduciary responsibility to the investing public is the cornerstone of its core philosophy and values. The Group follows the highest standards of professional and ethical practices and disciplines in all business areas and administers the most stringent Code of Corporate Governance. We also are building a long-term Corporate Social Responsibility Strategy

•Flag-ship open-end pure equity fund PSM, is the best-performing fund since its inception in March 2002, delivered 642.5% vs KSE-100 635.4%

•Closed-end equity fund, the Pakistan Premier Fund ñ won the KSE's Top 25 Companies Award by the KSE in 2005

•Arif Habib Securities Ltd. (Group holding company) has delivered a phenomenal total return of 11,912.7% since it was listed in 2001 as compared to the KSE-100 Index return of 907.91%          

•Arif Habib Securities Ltd. has been in the KSE's top 25 listed companies for 5 years running

We have a distinct policy of concentrating on needs of small investors and offer them more suited products for achieving their objectives in future also passing them better returns on their investments resulting from the stock markets performance which were previously not available to them. For that purpose, we have developed various products best suited to their requirements and also retaining a team of trained investment promotion officers for constant support and advice to them. 

PAGE: What is your advice on "where to invest your money?"

SAA: I would like to suggest that our track-record says it all: If you have a longer term objective to achieve, invest in PSM directly or through various investment plans we offer and for diversification we have a full array of products that will suit individual investor needs.

ARIF HABIB INVESTMENTS

Arif Habib Investments (AHIM) with funds under management of Rs 22.6 billion as of 30 June 2007 announced the following distribution for their open‑end funds: Pakistan Stock Market Fund, Pakistan International Element Islamic Fund, Pakistan Capital Market Fund, Pakistan Income Fund and MetroBank Pakistan Sovereign Fund, on Wednesday 4th July 2007.

The Pakistan Stock Market Fund's (PSM) Net Asset Value per unit has grown from Rs 84.29 to Rs 109.08 over the FY2007, a total return of 29.4 1 % Net assets as of 30 June 2007 are Rs 3.25 billion. PSM announced a bonus distribution of Rs 25 per unit, which is 29.66% of the opening NAV for FY2007.

The Pakistan Capital Market Fund's (PCM) Net Asset Value per unit has grown from Rs 11.53 to Rs 14.59 over the FY2007, a total return of 26.54%. Net assets as of 30 June 2007 are Rs 1.08 billion. PCM announced a bonus distribution of Rs 3 per unit, which is 26.02% of the opening NAV for FY2007.

The Pakistan International Element Islamic Fund's (PHF) Net Asset Value per unit has grown from Rs 47.73 to Rs 58.89 over the FY2007, a total return of 23.38%. Net assets as of 30 June 2007 are Rs 1.07 billion. PIIF announced a bonus distribution of Rs 8.75 per unit, which is 18.33% of the opening NAV for FY2007.

The Pakistan Income Fund's (PIF) Net Asset Value per unit has grown from Rs 50.11 to Rs 55.47 over the FY2007, an annualised return of 10.70%. Net assets as of 30 June 2007 are Rs 9.41 billion. PIF announced a bonus distribution of Rs 5.25 per unit, which is 10.48 % of the opening NAV for FY2007.

A total return for the MetroBank Pakistan Sovereign Fund series was 8.60 % for MSF (12112), 8.67 % for MSF (12/07) and 9.06 % for MSF (perpetual). The bonus distribution for the MSF series Rs. 2.63 per unit for MSF (12/12), Rs. 3.97 per unit for MSF (12107) and Rs. 1. 79 per unit for MSF (perpetual) which is 5. 10 %, 7.93 % and 3.99 % respectively on the basis of the NAVs at the beginning of the financial year.

Individual benchmarks are in the process of being established for each fund. Future reporting shall include comparison with the benchmarks. In the mean while, for the benefit of public information, it may be mentioned that the KSE‑100 Share Index delivered a total return of 37.87% for the financial year, the Dow Jones International Islamic Index delivered 23.67% for the same period and the average Six‑month KIBOR for the period was 10.36%

AHIM has recently launched the Pakistan Pension Fund under the Voluntary Pension System (VPS) and is one of four fund managers given permission to manage funds the VPS. With the advent of the new financial year, the Company has also launched the first of its Capital Protected series of closed‑end funds. This fund has an element of international investment too.