ASKARI INCOME FUND SIZE GROWS TO RS.4.4 BILLION
The fund invests only in fixed income securities and not in shares, hence, it is insulated against the stock market volatility.
SHAMIM AHMED RIZVI, Bureau Chief, Islamabad
Feb 19 - 25, 2007
Askari Investment Management Ltd (AIM), a subsidiary of the Askari Commercial Bank, was incorporated in September 2005 with a share capital of Rs.100 million. It launched its first fund Askari Income Fund (AIF) with the seed money of Rs.250 million in March 2006. The size of the fund, during a short span of less than a year, has grown to Rs.4.4 billion.
Encouraged by this phenomenal success AIM is planning to launch its second fund - Askari Asset Allocation Fund - in April 2007. Askari Income Fund declared a dividend of 4.49 percent in June 2006 after the operation of the fund for only three months. The dividend to be declared in June 2007 is likely to be above 11percent.
Mr. Adnan Afaq, Director and the Chief Executive of Askari Investment Management Ltd, in an exclusive interview to PAGE, while revealing the above stated facts, claimed that despite being a new entrant in the field AIF is ranked among the top four performance-wise out of about 35 investment companies and 15 active funds.
Explaining the working of investment management companies (also termed as Investment Banks) and the salient of features of Askari Investment Management Ltd, Mr. Adnan said, a mutual fund endeavors to raise public money with the explicit intention to invest. The investment horizon has to be stated in a publicly available document called the 'offering document' which under law requires the regulator SECP's prior approval. The fund manager is then bound by the terms of the constitutive documents. The money raised is placed in a trust usually referred to as "a fund" and a trustee is appointed to act as custodian of the fund. Such a structure safeguards the investor's money and the fund manager's role is then focused on his abilities to manage the funds.
Askari Investment, as an asset management company, does not have direct access to the money in the fund. The assets are in the custody of the Central Depository Company of Pakistan (CDC), the trustee of AIF, who would only release funds for investments after making sure that the money is being invested within the ambit of the constitutive documents and SECP regulations. While Askari Investments manages the funds it does not have physical possession of it.
A fixed income fund such as Askari Income Fund invests only in "fixed income securities" such as term finance certificates (TFCs), government bonds, treasury bills, Certificates of Investment (COIs), Continuous Funding System (CFS), spread transactions, etc. It does not invest in shares and, hence, is insulated against the volatility of the stock market. The following table shows the movement of the stock market in dotted line from mid March 06 to end of October 06. Note the steady line, which reflects the return from AIF.
"Askari Income Fund is obliged to pass on the risk and rewards of the investment to its investors. We invest in a broad spectrum of instruments designed to minimize risk and maximize return for our clients," he said, adding that the aim is to be able to outperform most fixed return investments in the market. Historically, mutual funds have consistently outperformed bank deposit rates, especially if we include the massive tax advantages associated with mutual and investment. The rate of return is not fixed.
The fund proposes to issue bonus units in lieu of cash dividends. Consequently, the pay-out will be treated as capital gains, which currently does not attract any tax liability. A tax-free yield of 11% is effectively equivalent to a 16.9% gross yield, if taxed at the rate of 35%. For an entity or person liable to pay tax the net return on a 11% yield is as follows.
AIF is an open-end fund, which means that you can buy a nit at that day's offer price and sell it to the company at the day's redemption price. You won't incur any penalties if you decide to liquidate your position. However, you will reap progressively higher returns the longer you maintain your investment position. Withdrawals usually take 3-4 days or a maximum of 6 days. There are no penalties for partial or full withdrawals, Mr Adnan said.
Explaining the risk factors, he said all mutual fund investments are subject to market risks and the investors may experience volatility in returns. There are the two major risks that a fixed income fund faces, "and we are closely monitoring both on a continuous and stringent basis".
Elaborating, he said, one is the counter party or credit risk. The risk here is that the institution to whom we have given the money defaults. To minimize counter party risk, AIF will only invest in instruments with a credit rating of at least 'A'. Plus we restrict our exposure to 10% to a single counter party. Through diversification the fund hedges the investors risk and increases reward. The second is the interest rate risks. We consistently review the economy, formulate and update our view on the interest rates. Currently, the fund is predominantly invested in short tenure securities (less than 6 month maturity) to mitigate interest rate risk. This is normally only achievable through a sizable investment. Consequently, even where a customer invests only Rs.5,000, he/she becomes a part of the total portfolio and will reap the rewards on a proportional basis with the rest of the fund clientele.
Continuing, he said, Askari Investment has a team of very capable professionals managing the fund. These professionals have had distinguished and successful careers in the major financial capitals of the world - London, New York, Sydney, Toronto, Abu Dhabi, Pakistan - just to name a few.
PAK OMAN ADVANTAGE FUND'S TRUST DEED:
Pak Oman Asset Management Company Limited and the Central Depository Company signed a trust deed for the Pak Oman Advantage Fund (POAF). The fund will invest primarily in instruments that provide investors with steady and market based fixed income return with minimal interest rate, price, and credit risk, POAF is also the first closed end income fund in Pakistani market that carries a fixed duration.
POAF is a closed end Fund with the objective to invest in high quality debt instruments. At least 75% of the Fund will be invested in tier-2 TFCs issued by Commercial Banks thereby significantly reducing credit risk in the underlying asset pool. The remaining 25% will be invested in other TFCs, bank placements, Reverse repurchase transactions where the underlying securities are of acceptable risk (Government or investment grade corporate bonds) and CFS. POAF will have a limited life of 8 years, after which the fund will be wound up and investors paid back. This Fund has already received a preliminary fund stability rating of AA- from JCR-VIS denoting a high degree of stability in returns where risk is modest.
The Fund has been offered directly to institutional and corporate investors through a Pre-IPO and will subsequently be offered by IPO to individuals, retirement plans and other investors. The PreIPO has attracted a wide variety of investors.
This Fund will be managed by Pak Oman Asset Management Company which is a joint venture between Pak Oman Investment Company Limited, Oman National Investment Corporation Holding, BankMuscat SAOG, and National Logistics Cell SRBF.
POAMC is a Non-Banking Finance Company and has the required license to undertake Investment Advisory and Asset Management Services under NBFC Rules, 2003.