CHAIRMAN'S SPEECH
Mr. Najam Ali
Chairman - MUFAP
March 14, 2007
Lahore, Pakistan
Distinguished guests, ladies and gentlemen a very good morning. It is my distinct privilege to extend, on behalf of Government of Pakistan and Mutual Funds Association of Pakistan, a warm welcome to each and every one of you for your presence in Lahore, Pakistan in connection with the 12th Asia Oceania Regional Meeting of the International Investment Funds Association (IIFA),USA. The annual Asia Oceania Regional Meeting is an important assembly of fund industry association executives in the region – this year’s meeting includes forty six (46) delegates from eleven (11) member countries of IIFA of Asia Pacific Region.
I see many delegates present in this meeting whom I have already met during the last two IIFA meetings that I attended in Washington and Turkey. I also see many new faces and I look forward to getting to know each of you over the next few days.
It is heartening to witness that the global funds industry has continued to experience dramatic growth and evolution for the last 15 years or so and has become a truly global financial sector. USA is the leading player in the sector with a share of about 50% of the total global mutual funds assets of US$ 15-16 trillion entrusted collectively to be taken care of by us. These assets represent an enormous source of capital and stimulus to economic growth worldwide.
The financial sector in Pakistan too is on a roll these days and has strengthened enormously in the last couple of years mainly due to extraordinary and outstanding performance of the banking industry following the implementation of banking reforms and privatization of public sector banks together with strong upsurge in business activities in financial and equity markets due to continuity in business friendly policies of the government. Some healthy developments occurred in our country prompting the acquisition of private banks by renowned foreign banking groups. Standard Chartered paid an impressive $ 487 million for acquiring a majority stake in Union Bank. ABN AMRO Bank has announced to take over Prime Bank and the TAMASEC of Singapore is negotiating the takeover of PICIC. Also, according to bankers, other international banks, such as Barclays and HBSC are on the lookout for other possible acquisitions. In addition, top international names such as JP Morgan and Credit Suisse are also exploring options to make their presence felt in Pakistan. As a result of these positive development on the horizon of the country, Foreign Direct Investment (FDI) has attained a record level of $ 3.8 billion in the last year and is expected to touch an all time high level of $ 5 to $ 6 billion in the current year. Similarly, the foreign remittances have also grown to a record level of $5 billion this year. All these are the positive developments witnessed on the economic and business scene of the country and reflect considerable improvement in the confidence of investors towards government’s reform programs and it’s on going policies.
Like banking sector, the performance of the mutual funds industry in Pakistan has also improved significantly during the same period. In 2002, there were only Twelve (12) AMCs/IAs in the country offering a few products and managing thirty seven (37) mutual funds under open and close end categories with a total net asset of Rs. 25 billion (approx. US $ 0.42 billion equivalent) only. At present, there are twenty nine (29) AMCs/IAs offering specialized and varied products and managing fifty (50) mutual funds, thirty two (32) open end funds and eighteen (18) closed end funds with a total net asset of Rs. 174 billion. (approx. US $ 3 billion equivalent)
But still Pakistan is far behind in funds industry as compared to level of growth and development achieved in this area in the regional and global funds industry as the investment ratio in mutual funds as percentage of bank deposits at present stands at a mere 5-6 percent as compared to India’s 20 percent and developed economies at 90 percent plus level. This reflects the potential room for growth available in the local funds industry. The mutual funds industry in Pakistan needs to make concerted and sincere efforts on sustainable basis for its bright and shining future. I am confident that the future of mutual funds industry in Pakistan is quite promising and encouraging for the following reasons:
(i) Expected addition of substantial depth to the industry with the privatization of country’s largest public sector mutual fund i.e. National Investment Trust (NIT) in near future.
(ii) Launching of Voluntary Pension Funds and REITS (Real Estate Income Trusts) in near future.
(iii) Attractive business prospects/avenues for asset management companies in view of the requirement of private and public sector entities for professional management of their proprietary, pension and provident Fund portfolios.
(iv) Interest of foreign institutions for investment in local mutual funds.
(v) Availability of regulator’s (SECP’s) support to the industry in terms of prudent management of its risk, provision of operational autonomy, reduction of fragmentation, protection of investors’ interest, dissemination of comprehensive disclosure requirements at the time of public offering and enforcement and prescription of subsequent reporting on the affairs of funds.
(vi) Flexibility available to AMCs/IAs to establish their trusts or companies as well as to float equity, debt or hybrid funds and
(vii) Continuous strong growth in the country’s stock markets is likely to help mutual funds industry further grow and it is expected to see the industry growing by upto 200 percent in the next four to five years.
There is no denying that mutual funds industry differs from country to country in important ways. I suspect, however that we all perceive similar issues, challenges and opportunities in the current environment. Truly speaking, the meetings like the present one provide each of us the much needed opportunity to do more collectively as members of IIFA and share our knowledge and experiences to address common concerns. I am sure there are many concerns. I would like to mention a few for consideration.
The task of educating our investors
This is an ongoing issue for each of our associations. What we need to do to address this concern is that we should make proper and effective use of new and innovative tools available to us particularly the Internet which can be used to educating investors to help them make sound and prudent investment decisions for achieving their long term financial goals.
The need to develop close relationship with sales intermediaries in the interest of fund investors
This is a big challenge for the investment funds industry as any lacking in this area can greatly affect the interest of fund investors who mainly rely upon the help and advice of sales intermediaries.
Corporate Governance and Disclosure
This is yet another very important area that needs to be addressed at all cost as the accuracy of financial information and securing the investors’ confidence in the integrity of securities markets are the prerequisites and important goals for sustainable growth and development of investment funds industry. In this connection, I am of the view that there is a pressing need to bolster independence of the accounting standard- setting process, strengthen the oversight of public auditing and increase the authority and resources of the regulator.
Taxation
Fund investors are subject to disparate tax treatment due to complex tax laws and regulations. I feel that there should be a “level playing field” for funds investors who choose to invest in the securities markets through mutual funds.
Global and International Developments
There is a need to have a joint and collective effort in making global securities markets work more effectively and efficiently to secure the interest of investors of every member country of IIFA who participate in stocks, bonds and money market products through mutual funds. In this regard, we need to support initiatives and reforms that keep these markets competitive, transparent and liquid.
We have much to discuss these and other pressing issues during the period of this meeting and there is much we can accomplish.
Lastly, on behalf of MUFAP and Pakistan I thank you all for your gracious presence here and giving us the opportunity to host you and this important meeting. Again welcome to Lahore. I hope the meeting proves to be productive, valuable, enjoyable and memorable for you all.