Asset Management Company (AMC) is an entity 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.
ASSET MANAGEMENT COMPANY SETUP
As per section 5 of the Rules, the NBFC or any other company subject to eligibility in terms of schedule I shall make separate applications to the Securities and Exchange Commission of Pakistan for grant of licence for carrying Asset Management business. The said application shall be submitted to the Commission in Form-II along with a non-refundable processing fee as may be specified by the Commission.
RULES & REGULATIONS OF ASSET MANAGEMENT COMPANIES
The Asset Management Companies is regulated in such Manner and on such fee such fee / charges as may be Prescribed in The Non-Banking Finance Companies (Establishment and Regulation) Rules, 2003 and in The Non-Banking Finance Companies and Notified Entities Regulations, 2008.
An NBFC or any other company may apply to the Commission for grant of licence of an Asset Management Company subject to eligibility criteria given in Schedule I.
|Form of Business||Type of Company||Minimum Number of Directors||Independent Number of Directos||Number of directors with relevant experience of at least five years at a senior management level for a particular form of business||Rating||Submission of Financial Statement|
|Asset management services||i) A public limited company incorporated as NBFC as per the Rule 4.|
ii) An existing fund management NBFC with a valid investment advisory service licence and minimum 5 years Experience
|Number of directors stipulated in the Ordinance||One third||(i) 1 director, if number of directors including chief executive is three|
(ii) 2 directors, if number of director, including chief executive is greater than 3
|Management quality rating||As per requirements of the Ordinance|
Table: A part of Schedule I with regards to Asset Management Company
REGISTRATION OF ASSET MANAGEMENT COMPANY
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 two hundred 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.
LICENSING CONDITIONS FOR ASSET MANAGEMENT COMPANY
The NBFC or any other company subject to eligibility in terms of schedule I shall make separate applications to the Commission for grant of license for carrying out each form of business. The said application shall be submitted to the Commission in Form-II along with a non-refundable processing fee as may be specified by the Commission.
PROCESS FEE OF ASSET MANAGEMENT COMPANY
- NOC / Permission = Rs.250,000
- Licensing = Rs.500,000
CANCELLATION OF REGISTRATION
Where the Commission 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 / regulations 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.
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.