Asset Management Companies in Pakistan
An 'Asset Management Company' is a firm that invests the pooled funds of retail investors in securities in line with the stated investment objectives. For a fee, the investment company provides more diversification, liquidity and professional management service than is normally available to individual investors. The diversification of portfolio is done by investing in such securities which are inversely correlated to each other. They collect money from investors by way of floating various mutual fund schemes. Mutual funds, hedge funds and pension plans are all run by asset management companies. These companies earn income by charging service fees to their clients. AMCs offer their clients more diversification because they have a larger pool of resources than the individual investor. Pooling assets together and paying out proportional returns allows investors to avoid minimum investment requirements often required when purchasing securities on their own, as well as the ability to invest in a larger set of securities with a smaller investment.
Regulation of Business of Asset Management Companies:
The business of Asset Management Companies shall be regulated in such manner and on payment of such fees and charges as may be prescribed in the rules. Section 32 and 33 of the Securities and Exchange Ordinance 1969 deals with the Asset management Companies.
Asset Management Companies Rules 1995:
The Federal Government is empowered to make the following rules to regulate the business of Asset Management Companies.
Commencement of Business:
According to Rule 3 of Asset Management Companies Rules 1995, no company shall commence business as Asset Management Company unless it is registered with the Authority under these rules. The authority is Securities and Exchange Commission of Pakistan.
Eligibility for Registration:
A company proposing to commence business as an asset management company shall be eligible for registration under these rules if:
It is registered as a public limited company under the Companies Ordinance, 1984 (XLVII of 1984);
It has a paid up capital of not less than thirty million rupees;
No director, officer or employee of such company has been convicted of fraud or breach of trust;
No director, officer or employee of such company has been adjudicated as insolvent or has suspended payment or has compounded with his creditors; and
The promoters and directors of such company are, in the opinion of the Authority, persons of means and integrity and have special knowledge and experience of matters which the company may have to deal with as an Asset Management Company.
Under rule 5, a company eligible for registration may make an application to the Authority for registration under these rules.
Application processing fee of fifty thousand rupees in the form of bank draft payable to the Commission shall accompany the application.
The Authority may, after satisfying itself that the applicant is eligible for registration and that it would be in the interest of the capital market so to do, grant a certificate of registration to such company.
Cancellation of Registration:
Where the Authority is of opinion that an asset management company has contravened any provision of the Ordinance, or has otherwise neglected or failed to comply with any requirement of these rules or has failed or neglected to carry out its duties to the satisfaction of the trustee, and the Authority or the trustee, as the case may be, considers that it would be in the interest of the unit holders so to do, the Authority may, on its own motion or on the report of the trustee, by order in writing, cancel the registration of the Asset Management Company.
No such orders shall be made except after giving the Asset Management Company an opportunity of being heard.
Restrictions on Asset Management Companies:
There are certain restrictions on asset management companies, they are as follows - It cannot:
Merge with, acquire or take over any other asset management company or a scheme, unless it has obtained the prior approval of the Authority in writing to the scheme of such merger, acquisition or takeover;
Pledge any of the securities held or beneficially owned by a scheme except for the benefit of the scheme;
Accept deposits from a scheme;
Make a loan or advance money to any person;
Participate in a joint account with others in any transaction;
Apply any part of its assets to real estate except property for its own use;
Make any investment with the purpose of having the effect of vesting the management, or control, in the scheme; and
Employ as a broker, directly or indirectly, any of its director, officer or employee or a member of a family of such person which shall include spouse, parents, children, brothers and sisters.
Domains Associated With Asset Management Companies
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Merger is a tool used by companies for the purpose of expanding their operations for an increase in their profitability.
An Offshore Company does not conduct most of its business in the country where it is officially based.
Obligations of Asset Management Companies:
An asset management company shall:
Be obliged to manage the assets of the scheme in the interest of the unit holders in good faith and to the best of its ability and without gaining any undue advantage for itself or any of its related parties or its officers;
Account to the trustee for any loss in value of the assets of the scheme where such loss has been caused by its negligence, reckless or willful act or omission;
Be responsible for the acts and omissions of all persons to whom it may delegate any of its functions as manager as if they were its own acts and omission;
Maintain at its principal office, proper accounts and records to enable a complete and accurate view to be formed of the assets and liabilities and the income and expenditure of the scheme, all transactions for the account of the scheme and amounts received by the scheme in respect of issues of units and paid out by the scheme on redemption of units and by way of distributions;
Prepare and transmit the annual report, together with a copy of the balance sheet and income and expenditure account and the auditors report of a scheme within four months of closing of the accounting period to the unit holders, and the balance sheet and income and expenditure account shall comply with requirements set out in Schedule II;
Within two months of the close of the first half of its year of account, prepare and transmit to the unit holders and the Authority a profit and loss account for, and balance sheet as at the end of that half year, whether audited or otherwise;
Maintain a register of unit holders of a scheme and inform the Authority of the address where the register is kept;
Appoint, at the establishment of a scheme and upon any vacancy, an auditor who shall be a Chartered Accountant and independent of the auditor of the management company and the trustees.
Furnish a copy of the annual report together with copies of the balance sheet, income and expenditure account and the auditors report of a scheme to the Authority within four months of the close of the accounting period together with a statement containing the following information, namely: (1) Total number of unit holders; and (2) Particulars of the personnel (executive, research and other) of the asset management company; and
Furnish a copy of annual report of the company together with copies of the balance sheet, income and expenditure account and the auditors report within four months of the close of the accounting period.
Remuneration payable to Asset Management Companies:
An asset management company shall be entitled to remuneration:
During the first five years of the scheme, of an amount not exceeding three per cent of the net assets of the scheme as at the end of its year of accounts and thereafter of an amount equal to two per cent of such assets; and
Of an amount not exceeding one-half of the amount by which the dividend distributed by the scheme exceeds twenty per cent.
Short sale not allowed:
According to rule 14 no scheme shall affect a short sale in a security whether listed or unlisted.
Appointment of Trustees:
Every investment scheme for which authorization is requested shall appoint a trustee with the approval of the Authority.
Conditions applicable to trustees. - A trustee shall be:
A scheduled bank licensed under the Banking Companies Ordinance, 1962 (LVII of 1962), and have been in business for at least five years; or
A trust company which is a subsidiary of a scheduled bank; or
A foreign bank operating as a scheduled bank in Pakistan and operating as trustee internationally; or
A central depository company approved by the Authority.
Trustee and the asset management company to be independent:
The trustee shall not in any way be related to the asset management company.
A director or employee of the trustee shall not be involved in the management company.
Remuneration payable to the trustee:
A trustee shall be entitled to such fee or remuneration as may be allowed by the management company.
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