Performance-based management fees for AMCs in the offing

January 31, 2015

The Bangladesh Securities and Exchange Commission is planning to set performance-based management fees for asset management companies of mutual funds in line with its effort to pressurise the entities to improve performance, a BSEC senior official has told New Age recently.
In the existing mutual fund rules AMCs get regular fees for managing the mutual funds indiscriminating their performance in terms of how much the mutual funds are offering dividends to their unit holder, he said.
Due to the legal constrain, AMCs have no urge in improving performance of the mutual funds, the official said.
Some of the mutual funds are investing funds based on their personal interest, he said.
Due to the BSEC’s tough monitoring over the mutual funds, the performance of the mutual funds have improved a bit in 2014, but, except a few, almost all the mutual funds have declared less than 15 per cent dividend to their unit holders which have failed to lure investors, the official said.
Considering all of these, the commission has decided to amend the mutual fund rules setting performance-based management fees for the asset managers, he said.
The commission might set a standard dividend return ratio that must be ensured by the AMCs for entitlement of regular management fees, the official said.
Issuance of dividends less than the specified percentage will result deduction of management fees, he said.
Another BSEC official said that the commission might amend the mutual fund rules keeping scope for penalising the AMCs.
Experts on mutual funds say that lack of investment instrument, managerial capability and imprudence of the asset managers are the main constrain in making funds for investment.
In December last year, the capital market regulator issued letters to the custodians of mutual funds asking the entities to submit details of the MFs’ assets under their custody within January 20, 2015.
The commission in the last couple of years had taken several steps to make the ailing mutual fund sector vibrant by ensuring proper function of the mutual fund-related organisations, a BSEC official said.
In line with the commission’s previous actions, verifying assets of the mutual funds will help the commission find out irregularities done by the mutual fund-related entities, he said.
After the market crash in 2010-2011 most of the mutual funds failed to offer dividend to their unit holders that put a negative impact on the overall mutual fund sector.
Due to the investors’ negative perception about the mutual funds, most of funds are now trading at the stock exchanges below their net asset values per unit, the official said.
The commission’s actions against the asset managers, trustee and custodians of the mutual funds might improve performances of the funds and restore investors’ confidence, he said.
Seventeen asset managers are operating 40 mutual funds listed with the capital market.

-With New Age input

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