Good time to invest in Pakistan’s Mutual Funds and Capital Markets

Good time to invest in Pakistan’s Mutual Funds and Capital Markets

  • Al Meezan Investments offers a comprehensive range of Shariah compliant investment solutions

Interview with Mohammad Shoaib — CFA , CEO, Al Meezan Investments

PAGE: Tell me something about yourself and your organization, please:

Mohammad Shoaib: I have the honor of being the founding CEO of Al Meezan Investment Management Ltd, which is the first and still the only full-fledged Shariah Compliant Asset Management Company in Pakistan. Al Meezan Investments is managing investments of over Rs.200 Billion (as on June 30, 2021) USD 1.27 Billion across 20 mutual funds/pension funds and discretionary portfolios on behalf of over 145,000 clients. We have over 600 employees in the organization. Being a graduate from IBA, I am also fortunate to be a Chartered Financial Analyst (CFA) charter holder. I am currently one of the directors of CFA Society Pakistan, which was founded by myself under the capacity of President in 2002. In 2006, the CFA Institute Magazine recognized me as the “Most Influential CFA Charter Holder“, while as recently as in 2019, I was conferred the very prestigious accolade of “Volunteer of the Year: Lifetime Achievement Award” by the same institute.

Professionally, I have been an active volunteer in many areas of the financial sector and some of my volunteer roles include being:

  • Nominee director of SECP on Board of Pakistan Stock Exchange (PSX).
  • Board member of Institute of Chartered Accountants of Pakistan (ICAP).
  • Chairman, Mutual Funds Association of Pakistan (MUFAP).
  • Board member Pakistan Institute of Corporate Governance (PICG).
  • Member of the Academic Board of Institute of Business Administration (IBA), Karachi.
  • Member of the Central Bank’s Committee on Islamic Capital Markets.

Currently, I am the board member, Advocacy and GIPS Chair for CFA Society Pakistan and Senior Vice Chairman, MUFAP. I have participated in various seminars, conferences and workshops across the globe during my 30-year career in investment management.

Introduction to Al Meezan Investments

We began our journey in 1995. The objective of this endeavor was simple: to bring Shariah Compliant investment options to the people of Pakistan and make it their first choice. Due to the continued trust our customers hold in us, Al Meezan is now, Alhamdulillah one of the Largest Asset Management Company (AMC) in Pakistan with a market share of almost 44% in the Islamic mutual funds segment and around 18% market share in overall industry (as of June 30, 2021). As the leading Fund Manager in Pakistan, we offer a comprehensive range of Shariah compliant investment solutions. We are proud to maintain AM1 rating, which is the highest management quality rating in Pakistan. We also enjoy a unique position of being the only AMC in Pakistan to be awarded the highest management quality rating of AM1 by both VIS & PACRA (Credit Rating Companies).

PAGE: How would you comment on the regulation of the Mutual Funds Sector?

Mohammad Shoaib: Mutual funds in Pakistan are regulated by the SECP with the objective of investor protection and capital market development. The process for granting licenses to AMC’s is transparent and thorough. With regards to our product launches and marketing, the approval of the SECP, however, does not guarantee the profitability or safety of a mutual fund. Therefore, an investor must analyze the pros and cons of participating in a mutual fund independently, fully considering their own personal investment objectives and needs. The SECP conducts continuous monitoring of mutual funds through reports that mutual funds are required to file with the SECP on a regular basis. SECP also performs on-site inspections of AMCs to ensure that AMC’s are constantly complying with applicable regulations. As a secondary regulator, all investments in mutual funds are held by the Trustee, which in our case is the renowned Central Depository Company of Pakistan (CDCPL). The Trustee, not only protects investors interest by safeguarding their assets, but it also provides an additional layer of check and balances on every day operational elements of the fund. The robust systems at CDC, definitely add to investor protection and assurance. Further, as I mentioned before that we are a full-fledged Shariah Compliant entity and are therefore closely monitored and guided by our Shariah Advisor, the very honorable Dr. Muhammad Imran Ashraf Usmani sahib, who is also on the board of Shariah supervisory board of Meezan Bank Ltd. The team of professionals and scholars led by Dr. Usmani, is one of the best in Pakistan and has years of experience in the field of Islamic Advisory and Audit.

The following regulations and rules are applicable to mutual funds:

  • Non-Banking Finance Companies (Establishment & Regulation) Rules, 2003
  • Non-Banking Finance Companies & Notified Entities Regulations, 2008
  • Part VIII of The Companies Ordinance, 1984
  • Circulars and Directives issued by the SECP under the provisions of the Ordinance.

Apart from the above, SECP also monitors the investment universe globally & periodically issues amendments/ new regulations to keep up with the international regulatory regime.

Overall, the regulation of Mutual Fund Sector is quite robust in Pakistan.

I would also like to add a very important point that Alhamdulillah, with the un-tiring efforts of the Government and the Regulators, the lucrative investment opportunities available in Pakistan are also now available to overseas Pakistanis through the Roshan Digital Account (RDA) initiative. Al Meezan is the first Shariah Compliant AMC in Pakistan to launch Mutual Fund Investment solutions for overseas Pakistanis through this platform.

PAGE: Why is the Mutual Funds Sector in Pakistan relatively small as compared to other countries?

Mohammad Shoaib: The Mutual Funds Industry has shown tremendous growth over the last decade, where the number of Asset Management Companies (AMC’s), number of funds and type of funds have witnessed a dynamic expansion. Assets Under Management (AUM) for the mutual fund industry at the end of June-21 stood at Rs. 1,050 billion (USD 6.66 Billion), out of which Rs. 440 billion (USD 2.79 Billion), is managed by Shariah compliant vehicles, representing a share of approx. 46%. However, I believe that this is just the tip of the iceberg and there is room for almost an exponential growth in the industry. Lack of awareness coupled with a lack of trust in the capital markets continues to be the biggest road block that has prevented the industry from reaching critical mass.

Apart from this, in the past political instability was a deep-rooted issue in Pakistan that had shaken progress of the economy and also interrupted social growth in the country. Having said that, the winds are changing for the better. In the current regime, Our Country’s economy is In Sha Allah heading in the right direction which will gradually restore investor confidence. The Investment industry itself, is working diligently towards increasing awareness leveraging technology and encouraging account opening and investments through digital channels. However, I feel that we still have a long way to go! I am confident that the next 5 years will witness double digit growth in the Mutual Fund Industry if the economic indicators continue to improve and the industry collaborates to increase the size of the pie instead of competing for the same investor base.

PAGE: Could you tell us about the structural changes in Mutual Funds Sector over the period?

Mohammad Shoaib: Mutual Funds offer a diverse platform for investments as compared to banks or any other Islamic or conventional investment avenues. The primary goal of a mutual fund is to pool small savings and invest in a well-diversified portfolio of securities, which would allow the investor to significantly reduce risk and seek optimum returns. A Mutual Fund or a combination thereof, tends to offer something for everyone based on their investment goals and risk appetite. In addition to diversity and competitive returns, mutual funds also offer tax benefits to the investors making it an even more attractive offering. As mutual funds are invested in multiple asset classes, the investors can invest their money in any avenue that best suits their risk profile and investment horizon. Long term investors can invest in high risk, high return equity funds like Meezan Islamic Fund while short term investors can take exposure in money market and income funds like Meezan Cash Fund, Meezan Sovereign Fund, Meezan Islamic Income Fund etc. which fall under the low/medium risk category for low to moderate returns. Al Meezan is also the first Shariah Compliant Asset Management company to launch Pakistan’s first Shariah compliant commodity fund and the first Shariah compliant Exchange Traded Fund. Al Meezan had always valued investment in technology and providing ease of access to clients for their transactional needs. However, especially during the recent pandemic, we have seen a remarkable level of acceptance of technology in almost all spheres of life. The investment industry is no different, as we have seen asset management companies, including ours, embark on digital account opening and usage of remote meeting platforms for enhancing sales and reaching our customers. I believe that this structural shift in here to stay and in future, we will see more advancement in the manner how technology is leveraged to achieve various objectives of the asset management companies.

PAGE: What are the prospective products of the Mutual Funds Sector down the line?

Mohammad Shoaib: After the introduction of Naya Pakistan Scheme by PM Imran Khan, the country has seen boost in the development of real estate market, there has been growth from 2020 to 2021 in the land development market. These circumstances have created room for AMCs to evaluate and launch Real Estate Investment Trust (REIT), which will attract investors interested in real estate. The success of the RDA initiative is known to all and the Government & Regulators deserve special appreciation for the initiative.

Since its launch in September 2020, Non-Resident Pakistani’s NRPs have remitted over $1.6 billion under the RDA initiative. The data released by the SBP shows that total 181,556 accounts have been opened from 171 countries across the world by end of June 2021. Under the RDA initiative the government has also allowed brokerages and Asset Management Companies to accept investments from Overseas Pakistanis. Alhamdulillah, Al Meezan was the first Shariah Compliant AMC to launch the RDA Investment Account in April 2021. Since inception we have opened about 1500 accounts with over Rs.109 Million (USD 793,449) in AUMs. The opening of digital account has been permitted recently by SECP. I believe that digital account opening is the way forward and it will greatly facilitate AMCs to expand their reach to potential clients throughout the country through mobile phones, social media and other digital channels. This is a step in right direction which can easily double the number of investors in mutual funds in a short period of time. We expect that the economic recovery that started last year will continue in the future. Now is the time for both our local and overseas investors to invest in the growth potential of the country through investments in Mutual Funds and Capital Markets.

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