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INSTITUTIONAL INVESTMENT
What Does Institutional Investor Mean?
A non-bank person or organization that trades securities in large enough share
quantities or dollar amounts that they qualify for preferential treatment and lower
commissions. They are organizations which pool large sums of money and invest
those sums in companies. They include banks, insurance companies, retirement or
pension funds, hedge funds and mutual funds. Institutional investors face fewer
protective regulations because it is assumed that they are more knowledgeable and
better able to protect themselves.

Types of institutional Investor:

• Mutual fund

• Pension fund

• Investment trust

• Unit trust and Unit Investment Trust

• Investment bank

• Hedge fund

 MUTUAL FUND :

A mutual fund is a professionally managed type of collective investment

scheme that pools money from many investors and invests it in stocks,
bonds, short-term money market instruments, and/or other securities. The
mutual fund will have a fund manager that trades the pooled money on a
regular basis. The net proceeds or losses are then typically distributed to the
investors annually. A mutual fund could simply be described as a financial medium
used by a group of investors to increase their money with a predetermined
investment.
 PENSION FUND:

A pension fund is a pool of assets forming an independent legal entity that are
bought with the contributions to a pension plan for the exclusive purpose of
financing pension plan benefits. Pension funds are important shareholders of listed
and private companies.

 INVESTMENT TRUST :
A Investment trust is a form of collective investment found mostly in the United
Kingdom. Investment trusts are closed-end funds and are constituted as public
limited companies

 UNIT TRUST AND UNIT INVESTMENT TRUST:

A unit trust is a form of collective investment constituted under a trust deed.

A Unit Investment Trust (UIT) is a US investment company offering a fixed

(unmanaged) portfolio of securities having a definite life. UITs are assembled
by a sponsor and sold through brokers to investors.
 INVESTMENT BANK :

An investment bank is a financial institution that raises capital, trades in

securities and manages corporate mergers and acquisitions. Investment
banks profit from companies and governments by raising money through
issuing and selling securities in the capital markets (both equity, debt) and
insuring bonds (e.g. selling credit default swaps), as well as providing advice
on transactions such as mergers and acquisitions
 HEDGE FUND :

A hedge fund is an investment fund open to a limited range of investors that

is permitted by regulators to undertake a wider range of investment and
trading activities than other investment funds and pays a performance fee to
its investment manager.

Institutional investors in Bangladesh

Mutual funds:
There are 19 mutual funds here in Bangladesh. Largest fund of these is Grameen
Mutual fund scheme 2 and the smallest fund is ICB 1st mutual fund and ICB 2nd
mutual fund. The volume of Gmfo2 is 125 c taka and 1st and 2nd ICB mutual fund
are .5 c taka each.

A list of all mutual funds is illustrated below:

1 ICB

2 1st ICB Mutual Fund

3 2nd ICB Mutual Funds

4 3rd ICB Mutual Funds

5 4th ICB Mutual Funds

6 5th ICB Mutual Funds

7 6th ICB Mutual Funds

8 7th ICB Mutual Funds

9 8th ICB Mutual Funds

10 1st BSRS Mutual Fund

11 AIMS First Granted Mutual Fund

12 Grameen Mutual Fund One

13 Grameen One: Scheme Two

14 ICB AMCL 1st Mutual Fund

15 ICB AMCL Islamic Mutual Fund

16 ICB AMCL Unit Fund (Open end)

17 ICB AMCL Pension Holder Unit Fund (Open end)

18. ICB AMCL First NRB Mutual Fund

19 ICB AMCL Second NRB Mutual Fund

Investment Company:
An investment company is a company whose main business is holding securities of
other companies purely for investment purposes. The investment company invests
money on behalf of its shareholders who in turn share in the profits and losses.
There are some investment companies in Bangladesh. Some of their accounts are
given below:

➢ A & N investments
➢ Bahrain Bangladesh Finance and Investment Co. Ltd
➢ Bangladesh Industrial Finance Co. Ltd
➢ Hayes (Bangladesh) Ltd
➢ I.D.L.C
➢ I.P.D.C.
 ➢ Linkmen Bangladesh
➢ Lloyds Commerce & Investment Co-operative Society Ltd
➢ Muslin Textile Mill Ltd
➢ Onus Pvt. Ltd
➢ Prime Finace AND Investment Ltd.
➢ Sarah Holdings Ltd
➢ Saudia Bangladesh Ind. And Agri. Invest. Ltd.
➢ Saudia Bangladesh Ind. & Agri. Invest. Ltd. (SABINCO)
➢ Uttara Finance And Investments Ltd
➢ Vanik Bangladesh.

Insurance company:
A number of insurance company foreign, public and private are also working here in
Bangladesh. And they are playing role as institutional investors.

Life insurance company:

1. Delta Life Insurance Co., Ltd

2. Fareast Islami Life Insurance Co., Ltd

3. Meghna life insurance Co., Ltd

4. Mercantile Life Insurance Co., Ltd

5. National Life Insurance Co Ltd

6. Popular Life Insurance Co Ltd

7. Prime Islami Life Insurance Ltd

8. Progati Life Insurance Co., Ltd

Foreign Life Insurance Company:

1. American Life Insurance Company

General insurance company:

1. Sadharan Bima Corporation

Private General Insurance:

1. Central Insurance Co Ltd
2. Eastland Insurance Co Ltd
3. Federal Insurance Co., Ltd
4. Janata Insurance Co Ltd
5. People's Insurance Co Ltd
6. Phoenix Insurance Co., Ltd
7. Pioneer Insurance Co Ltd
8. Reliance Insurance Co., Ltd
9. Rupali Insurance Co., Ltd
10.United Insurance Co., Ltd
 •

CORPORATE GOVERNANCE

What is corporate governance?

Corporate governance is the set of processes, customs, policies, laws and
institutions affecting the way in which a corporation is directed, administered or
controlled. The aim of corporate governance is to ensure that companies that are
not managed by their owners are run in the best interest of the shareholder. This is
a multi-faceted subject. An important theme of corporate governance is to ensure
the accountability of certain individuals in an organization through mechanisms that
try to reduce or eliminate the principal-agent problem.
Over the time the definition and scope of corporate governance have changed.

➢ The process by which corporations are made responsive to the rights and
wishes of stakeholders.
➢ the relationship among various participants [chief executive officer,
management, shareholders, employees] in determining the direction and
performance of corporations
➢ The system by which companies are directed and controlled

Corporate governance is characterized by mainly four topics that are termed RAFT
in short. It depicts:

 Responsibility
 Accountability
 Fairness
 Transparency

Rules regulated by SEC in maintaining Corporate

Governance
Conditions are imposed on ‘comply or explain’ basis. The companies listed with any
stock exchange in Bangladesh should comply with these conditions or shall explain
the reasons for non-compliance in accordance with the condition No.5.

THE CONDITIONS:
1.00 BOARD OF DIRECTORS:
1.1. Board’s Size
The number of the board members of the company should not be less than 5 (five)
and more than 20 (twenty) with a view to enabling access to diverse expertise and
meaningful discussion:
Provided, however, that in the case of banks and non-bank financial institutions,
insurance companies and statutory bodies for which separate primary regulators
like Bangladesh
Bank, Department of Insurance etc. exist, the Board of those companies should be
constituted as may be prescribed by such primary regulators in so far as those
prescriptions are not inconsistent with the aforesaid condition.
1.2. Independent non-shareholder Directors
All companies should encourage effective representation of independent non-
shareholder directors on their Boards of Directors so that the Board as a group
includes core competencies considered relevant in the context of each company. For
this purpose, the companies should comply with the following:-
i. At least one fifth (1/5) of the total number of the company’s board of directors
should be independent non-shareholder directors;
Explanation: For the purpose of this clause, the expression “independent non-
shareholder director” means a director who is not connected with the company or
its promoters or directors on the basis of family relationship; who does not have any
other relationship, whether pecuniary or otherwise, with the company or its
subsidiary/associated companies; who is not a member, director or officer of any
stock exchange; and who is not a shareholder, director or officer of any member of
stock exchange or an intermediary of the capital market.
ii. The independent non-shareholder directors should be appointed by the elected
directors.
1.3. Chairman of the Board and Chief Executive
The positions of the Chairman of the Board and the Chief Executive Officer of the
companies should be filled by different individuals. The Chairman of the company
should be elected from among the directors of the company. The Board of Directors
should clearly define respective roles and responsibilities of the Chairman and the
Chief Executive Officer.
1.4 The Directors’ Report to Shareholders
The directors of the companies should include following additional statements in the
Directors’ Report prepared under section 184 of the Companies Act, 1994:
(a) The financial statements prepared by the management of the issuer company
present fairly its state of affairs, the result of its operations, cash flows and changes
in equity;
(b) Proper books of account of the issuer company have been maintained;
(c) Appropriate accounting policies have been consistently applied in preparation of
the financial statements and that the accounting estimates are based on reasonable
and prudent judgment;
(d) International Accounting Standards, as applicable in Bangladesh, have been
followed in preparation of the financial statements and any departure there from
has been adequately disclosed;
(e) The system of internal control is sound in design and has been effectively
implemented and monitored;
(f) There are no significant doubts upon the issuer company’s ability to continue as
a going concern. If the issuer company is not considered to be a going concern, the
fact along with reasons thereof should be disclosed;
(g) Significant deviations from last year in operating results of the issuer company
should be highlighted and reasons thereof should be explained;
(h) Key operating and financial data of at least immediately preceding three years
should be summarized;
(i) If the issuer company has not declared dividend (cash or stock) for the year, the
reasons thereof should be given;
(j) Significant plans and decisions, such as corporate restructuring, business
expansion and discontinuance of operations, should be outlined along with future
prospects, risks and uncertainties surrounding the company;
(k) The number of Board meetings held during the year and attendance by each
director should be disclosed;
(l) The pattern of shareholding should be reported to disclose the aggregate number
of shares (along with name wise details as stated below) held by:
Parent/Subsidiary/Associated companies and other related parties (name wise
details);
Directors, Chief Executive Officer, Company Secretary, Chief Financial Officer,
Head of Internal Audit and their spouses and minor children (name wise details);
Executives; and
Shareholders holding ten percent or more voting interest in the company (name
wise details).

Explanation:
For the purpose of this clause, the expression “executive” means top five salaried
employees of the company, other than the Directors, Chief Executive Officer,
Company Secretary, Chief Financial Officer and Head of Internal Audit.
2.00 CHIEF FINANCIAL OFFICER (CFO), HEAD OF INTERNAL AUDIT AND
COMPANY SECRETARY:

2.1. Appointment

The company should appoint a Chief Financial Officer (CFO), a Head of Internal Audit
and a Company Secretary. The Board of Directors should clearly define respective
roles, responsibilities and duties of the CFO, the Head of Internal Audit and the
Company Secretary.

2.2. Requirement to Attend Board Meetings

The CFO and the Company Secretary of the companies should attend meetings of
the Board of Directors, Provided that the CFO and/or the Company Secretary should
not attend such part of a meeting of the Board of Directors which involves
consideration of an agenda item relating to the CFO and/or the Company Secretary.

3.00 AUDIT COMMITTEE:

The company should have an Audit Committee as a sub-committee of the Board of

Directors.
The Audit Committee should assist the Board of Directors in handling the issues
which might be overlooked and should ensure a good monitoring system within the
business.
The aims of the establishment of an Audit Committee should be to create efficiency
in the operations and to add value to the organization. The Audit Committee should
be responsible to the Board of Directors according to the duties and responsibilities
assigned by the Board of Directors. The duties of the Audit Committee should be
clearly set forth in writing.
3.1. Constitution of Audit Committee
i. The audit committee should be composed of at least 3 (three) members;
ii. The Board of Directors should appoint members of the Audit Committee who
should be directors of the company and should include at least one independent
non-shareholder director;
iii. When the term of service of the committee members expires or there is any
circumstance causing any committee member to be unable to hold office until
expiration of the term of service, thus making the number of the committee
members to be lower than the prescribed number of 3 (three) persons, the Board of
Directors should appoint the new committee member(s) to fill up the vacancy(ies)
immediately or not later than 1 (one) month from the date of vacancy(ies) in the
Committee to ensure continuity of the performance of work of the Audit Committee.
3.2. Chairman of the Audit Committee
i. The Board of Directors should select 1 (one) member of the Audit Committee to be
Chairman of the Audit Committee;
ii. The Chairman of the audit committee should have a professional qualification and
must have knowledge, understanding or experience in accounting or finance.
3.3. Reporting of the Audit Committee
3.3.1 Reporting to the Board of Directors
i. The Audit Committee should report on its activities to the Board of Directors;
ii. The Audit Committee should immediately report to the Board of Directors on the
following findings, if any:-
(a) Report on conflicts of interests;
(b) Suspected or presumed fraud or irregularity or material defect in the internal
control system;
(c) Suspected infringement of laws, including securities related laws, rules and
regulations;
(d) Any other matter which should be disclosed to the Board of Directors
immediately.
3.3.2. Reporting to the Authorities
If the Audit Committee has reported to the Board of Directors about anything which
has material impact on the financial condition and results of operation and has
discussed with the Board of Directors and the management that any rectification is
necessary, upon completion of the period of time mutually fixed, if the Audit
Committee finds that such rectification has been unreasonably ignored, the Audit
Committee or it’s members should report such finding to the Commission.
3.4. Reporting to the Shareholders and General Investors
Report on activities carried out by the audit committee, including any report made
to the board of directors under condition 3.3.1 (ii) above during the year, should be
signed by the Chairman of the Audit Committee and disclosed in the annual report
of the issuer company.
4.00. EXTERNAL/STATUTORY AUDITORS
The company should not engage its external/statutory auditors to perform the
following services of the company:
i. Appraisal or valuation services or fairness opinions;
ii. Financial information systems design and implementation;
iii. Bookkeeping or other services related to the accounting records or financial
statements;
iv. Broker-dealer services;
v. Actuarial services;
vi. Internal audit services;
vii. Any other service that the Audit Committee determines.

5.00 REPORTING THE COMPLIANCE IN THE DIRECTOR’S REPORT

The directors of the company shall state, in accordance with the annexure attached,
in the directors’ report whether the company has complied with these conditions