Mixed reaction over charging of management fee by AMCs

Experts, asset management companies (AMCs), auditors and the securities regulator have expressed mixed opinion regarding charging of management fee of mutual funds (MFs) without performance or giving dividends to the unit- holders.
Some of the AMCs said the management fee should be based on performance but others differed with such an opinion saying that they realise the fee as per the securities rules to pay for office and staffs.
"We work as external auditors of the AMCs. But as per the securities rules, we have no scope to give opinion on whether the management fee charged by the AMCs is justified for their performance," said M. Munjurul Hassan, a partner of the Hoda Vasi Chowdhury & Co.
As per the securities rules, an AMC charges the annual fee at the rate of 2.50 per cent on the weekly average NAV up to Tk 50 million, 2.0 per cent per on additional amount of weekly average NAV above Tk 50 million to Tk 250 million, 1.5 per cent per on additional amount of weekly average NAV above Tk 250 million to Tk 500 million and 1.0 per cent per on additional amount of weekly average NAV over Tk 500 million.
According to information available with the Dhaka Stock Exchange (DSE), around 60 per cent of the 41 closed-end MFs have failed to give dividends in 2011 and 2012.
The AMCs, however, gave nominal amount of dividends for the year 2013.
As per the DSE information, the management fees charged by the AMCs of those MFs stood up to Tk 269.83 million.  
Faruq Ahmad Siddiqi, former chairman of the securities regulator, said the question of charging management fee based on AMCs' performance is absolutely valid as they are handling investors' money.
"It's also true that most of the MFs were offloaded in 2010 and 2011 and they faced a troublesome situation due to poor market situation. So, I think the securities regulator now should look into whether any AMC is handling MF without having professionalism," Mr. Siddiqi told the FE.
He said the AMCs must have analysts for the sake of proper investment and returns.
Stressing the need for discipline, Mr. Siddiqi also questioned the regulatory action against an AMC which recently reportedly invested in restricted sectors by breaching securities rules.
Yawer Sayeed, managing director of the AIMS of Bangladesh, said the management fee of the MFs should be based on performance of the AMCs.
 "I think, an AMC morally should not charge management fee if it fails to give dividend for more than one year. Several times, I made the proposal of fixing the management fee based on the performances of the AMCs," Mr. Sayeed told the FE.
He said the AMCs need to charge management fee to run their offices and pay salaries of the staffs. "An AMC may face difficulties to give dividend during the disaster period. But it's not logical that an AMC will charge management fees year after year without giving any dividend." Mr. Sayeed added.
Tareque Ismail, spokesperson of the AMCs, said the MFs have really performed during the bearish period of the capital market but failed to give dividends due to bindings of provisioning.
"The MFs were squeezed by 10 to 20 per cent although the market went down by around 60 per cent after the stock market debacle. Recently, a significant number of MFs disbursed dividends by 'repairing' their funds. This is the moral ground of charging fees," Mr. Tareque said.
A policy maker of the Bangladesh Securities and Exchange Commission (BSEC) said the regulator presently is not thinking of revising the management fee of the AMCs.
"We have relaxed the investment ceiling of the MFs for better returns following their demand. Nevertheless, some of the AMCs breached rules while making investments. But not a single AMC now will be allowed to manage the MF by breaching rules," the BSEC policy-maker said.
Another BSEC official said in future, the regulator may think to approve only the open-end MFs which need the performance of the AMCs only.