Liquidating the Growth Fund to Set a Precedent for Asset Managers

Asian Tiger Sandhani Life Growth Fund to be Liquidated Next Week Following Regulator's Decision

• Liquidation Decision: The Asian Tiger Sandhani Life Growth Fund will be liquidated next week upon completing its 10-year tenure. The Bangladesh Securities and Exchange Commission (BSEC) rejected the time extension appeal, marking a corrective step to rectify past missteps.

• Investor Relief: The timely redemption will allow unitholders to recover their investments at the current Net Asset Value (NAV), a relief amid significant discounts in the secondary market for listed mutual funds, including the Growth Fund.

• First Close-Ended Fund Redemption in a Decade: This marks the first instance in ten years where investors in a close-ended pooled fund will redeem their units. Previously, listed mutual funds were granted a 10-year extension post-maturity, causing frustration among investors.

• Regulatory Enforcement: BSEC has implemented the recommendations of the capital market reform taskforce, which advised that all close-ended funds should be redeemed upon maturity without extension.

• Trustee’s Attempt at Extension: The Bangladesh General Insurance Company (BGIC), the fund’s trustee, had sought a 10-year extension but was denied. Subsequently, the trustee notified BSEC of the fund’s maturity date on March 10, 2025.

• Market Reaction: Following the liquidation announcement, the Growth Fund’s unit price rose by 4.6% to Tk 6.80 on the Dhaka Stock Exchange, though it still trades at a 32% discount to its face value of Tk 10.

• Regulatory Perspective: BSEC spokesperson Md. Abul Kalam stated that a close-ended mutual fund could either be liquidated or converted to an open-ended fund, subject to approval by 75% of unitholders in terms of unit value. However, in this case, the regulator instructed liquidation.

• Investment Returns:

  • Investors who purchased units in 2015 and held them until redemption will see modest returns.
  • The fund distributed cash dividends between 5% and 15.5% from 2015 to 2022.
  • The current NAV per unit stands at Tk 8.22, an 18% decline from its face value.
  • The average annual return is approximately 4.5%, significantly lower than inflation and government savings certificates (Sanchayapatra).
  • Investors who acquired units below Tk 10 may see slightly better returns.

• Investor-Manager Dispute:

  • Unitholders criticized the Asset Management Company (AMC) for missing the chance to convert the fund into an open-ended scheme.
  • At an Extra-Ordinary General Meeting (EGM), investors questioned the AMC’s transparency regarding portfolio details.
  • The AMC justified shifting investments from equities to fixed deposit receipts (FDRs) for stability, but unitholders argued they could have done so independently for higher returns.
  • The trustee, acting on investor concerns, sought BSEC’s approval for liquidation.

• Growth Fund Overview:

  • Fund size: Tk 1 billion (Face value: Tk 10 per unit).
  • Sponsor’s contribution: Tk 200 million from Sandhani Life Insurance.
  • Pre-IPO funds: Tk 200 million; Public offering: Tk 600 million.
  • NAV per unit: Tk 8.22 (current market price basis).
  • Net assets: Tk 508.18 million (market value) and Tk 629.71 million (considering all assets & liabilities).

A mutual fund pools investments from multiple investors for reinvestment in stocks, bonds, and other assets, providing returns through dividends. The decision to liquidate the Growth Fund ensures investor exit and aligns with regulatory reforms aimed at strengthening confidence in the mutual fund sector.