Professional Documents
Culture Documents
Mutual Fund Pools money from many investors and invests the money in stocks, bonds, moneymarket instruments, other securities, or even cash. Closed-end funds Sells a fixed number of shares in an initial public offering after which the shares are then traded in the secondary market at a price (> or < funds NAV) Unit investment trusts ( UIT) Issue a fixed number of securities (units) as part of a public offering.
Private funds
y
They are offered only to a limited number of financially sophisticated investors rather than to the general public. Common types of private funds include:
Hedge funds Private equity funds
39
$ Trillions
25
Pension funds
Mutual funds
Insurance funds
SWFs
Private equity
Hedge funds
ETFs
Private wealth
Conventional Assets
Alternative Funds
The global fund management industry has seen huge growth over the past years But, more recently global trends point towards a shift in this status. The majority of these trends includes the following
Increase in regulation
Stricter and more uniform regulation yIncreased regulatory cost and burden
I. Increase in Regulation
The
fund market has come across more detailed regulation following recent financial crisis and increased political pressures, by which regulators have become more focused on investor protection at the point of sale.
The
The Lehman
collapse and the Madoff fraud which have revealed a regulatory difference between the EU and the USA in fund management
As a result Regulation has become Stricter and more uniform y For example the European fund market is being forced to deal with over 25 European and us regulatory initiatives including UCITS IV, Basel III, Solvency II, and Dodd Frank. Therefore, this will create a higher level playing field.
Increased Regulatory costs and Burden Also, tighter regulation will increase: the costs Of distributing funds for distributors product arbitrage by distributors. costs for managers
Therefore
regulation is important
The loss of investor trust stems from various factors including : Low performance High cost Lack of transparency (e.g. Risk disclosures) which is now being addressed by regulator. But, the industry will need to work on consistent low performance and high costs for investors in order to regain their trust.
Prime Relationship
y
y Moreover, with a potential Providers and shake up of investor trust, the manufacturers of financial distribution models may products, including the become more complex. fund management industry, have in some y Leading to a clear distinction respects become divorced between roles of pure distributors (e.g. stock from direct contact with exchanges) and pure advisers. end customers. y Which presents a high risk
The enormous change in the demographic balance of the population will mean that individual investors will increasingly be moving away from products geared to savings and accumulation towards decumulation products, which focus on income generation and capital protection. The fund industry bears the risks of assets outflows due to *decumulation *the conversions of assets accumulated during an employees working life into pension income at retirement age
The move from pay as you go systems will leave future pensioners to deal with critical investment decisions
y
The graying of Europe, coupled with increased longevity of the population, will pose a problem to pay as you go pension schemes. European governments are reacting to this issue by shifting the responsibility of retirement planning to the working individuals. This, however, creates a new challenge for individuals who now have to make investment decisions for their long term financial well being.
The challenge of the industry is to support individuals by delivering products suited to their retirement needs. Products must be designed, not only to save for retirement, but also allow steady income flow after the accumulation phase to safeguard the investor against insufficient cash flows in old age. Protection products will, be of particular interest, including those that focus on protection from adverse market performance, inflation movements and longevity risks. Products incorporating capital protection elements obviously look appealing to consumers in times such as these.
Emergence of mobile technology A new challenge for fund promotes to make their marketing strategies visible on theses communication channels. For example; in UK, proposal is made for clients to get information on fund prices on iphone.
2.
Growing impact of social media Social networking allows people to share opinions, information and even recommendations on all types of topics.
Targeting a new generation of customers Investors still favor their distributions and advisers to access investment products, through the use of many channels. The new generation of students and professionals who may be more financially literate, could challenge these prime relationships.
Emerging markets-particularly China and the rest of South East Asia are attracting strong interest from the clients of funds groups surveyed, as the focus shifts where people think the engine of the world will be. South Africa is currently less in demand. Attractive investments Driven by a low interest rate environment in Europe and a limited growth potential, investors appetite for emerging market products has grown.
1.
Attractive fund distribution destinations While penetration of European fund managers in the largest emerging markets remains low, significant opportunities may arise in the future. Asia accounts for 60% of the total world population but holds only 13% of AUM.
Increased specializations of investment funds Driven by the growing need of investors to diversify their portfolio to comply with specific risks or returns constraints leading to further sophistications of the industry. Increased competition from substitute products Is driven by development of savings products which can be packaged with the same content into different wrappers and be sold to the same investors, via the same distribution channel.
2.
Substitute products have proved to be efficient from an investor point of view. Substitute products allow for a broad range of asset classes and investment strategies. They can be developed and brought to the market faster to satisfy new market developments and new trends. They also provide investors with fast and targeted solutions
Mauritius has gained international credibility over the past years, and is firmly established amongst the leading international financial centres. Sector is relatively young (Took off in early 1990s) It has evolved positively during the past couple of years to gradually develop into a viable sector.
DEM Official Market 1 authorised Mutual Fund company 10 Authorised Mutual Fund companies + 2 Investment Trust companies.
Secondary data
Funds in Mauritius are classified as: Collective Investment Schemes (CIS/ Offshore Fund / Global Fund) Closed-end Funds commonly known as the Private Equity Fund.
1. II.
Acts governing Mauritian Funds: Funds: The Companies Act 2001 Financial Services Act 2007 The Securities Act 2005 Unit Trusts Act 2001
Financial Services Commission: Commission: Licenses, regulates and supervises non-bank (Insurance & Pensions, Capital Market operations, leasing & Credit Finance as well as Global Business activities) financial institutions in Mauritius whose roles are to channel funds from lenders to borrowers.
III.
A fund manager company in Mauritius can be set up with a Global Business License Category 1. Investment Companies have access to Mauritius double tax treaties.
Mauritius CIS Trends
Type of Licence GBC 1's (of which CIS) 2006 / 2007 1,367 87 2007 / 2008 1,872 156 2008 / 2009 1,277 112 2009 / 2010 1,698 101
28 %
The challenge for Mauritius will be its ability to effectively withstand global pain, thus claiming local economy to be less bullish. A need to develop private banking, wealth management and asset management capabilities. Risks and Costs: Changing market conditions can create fluctuations in the value of a mutual fund investment. Risk Management: inefficient risk management lead to companys failure.
Devote more financial and human resources to develop training facilities and meet the increasing needs of the sector for multi-disciplinary and multi-lingual professional skills and knowledge. There is a lack of liquidity in local market; in moments of mass selling, prices can drop quite sharply. Ensure data security and privacy- fund managers must update their security programs to safeguard confidential customer data.
Opportunities for portfolio diversification are constrained by the structure of the small island economy.
Issue of handling Equalisation- The method by which fund houses try to ensure that investors who enter the fund at different times are treated equally and fairly. A need of experienced Fund Administrators to sort out these bottlenecks.
Poor physical and electronic connectivity with the rest of the world. A need to improve technology for efficient investor transactions between all stakeholders, e.g. : Bankers Most of Europe and the USA are either still in recession or have low growth rates. The threat that Mauritius faces will be to maintain if not reinforce its already buoyant investment against competition from other jurisdictions. Shortage of qualified and trained manpower; lack of skills and know-how to meet the world-class needs of the industry. Fund managers need to understand the impact the regulations on the business. Hence, to ascertain that the market becomes more and not less efficient.
CeREF: Close-end Real Estate Fund & PEF: Private Equity Fund by 57.34% UT: Unit Trust by 41.07%
Analysis of IPRO Growth Fund IPRO Growth Fund Ltd is an open-ended authorised mutual fund, registered in Mauritius under the Companies Act 2001. Trend of NAV :
2007-2008 2008-2009 2009-2010 2010-2011 by 22.43% by 35.68 % by 33.3% by 23.39%
Annual Returns Year 2007 2008 2009 Returns 26.10% -29.00% 24.10%
2010 12.70%
6.40%
4.90%
28.80 %
returns shook funds price drastically. The increase may be due favorable economic conditions; Optimistic approach. 2009: steady returns inflation rate, real value of investment .
2010:
MCB Domestic Equities Fund is an open-ended fund constituted under the MCB Unit Trust duly authorised under the Securities Act 2005. Objective : Achieve long-term capital appreciation through investment in a diversified portfolio of listed equities in Mauritius.
Portfolio mix
Sector concentration
Industry, 4% Others, 1%
Investments, 19%
77% investment in equities listed on the SEM. . Diversified across many industries
Performance of Fund
80.00% 62.80% 60.00% 57.30% 40.00% 27.50% 20.00% 13% 3.20%
-40.00%
-37.50%
-60.00%
NAV
2006-2007: NAV by 5.5 % 2008: NAV by 99.5 % 2009: slight improvement in NAV of 27.5 % 2010-june 2011:NAV fell
The value of the financial instruments will fluctuate as a result of changes in market prices, whether changes are caused by factors specific to the individual security or its issuer or factors affecting all the securities on the market.
Economic risk
The performance of the Fund will depend upon the evolution of the main sectors of the Mauritian economy, namely Financial Services, Manufacturing and Construction. risk The values of bonds usually rise and fall in response to changes in interest rates. Such changes usually affect securities inversely.
Interest rate
CONCLUSION
y Mauritius
has achieved recognition as a reliable investment funds jurisdiction over a relatively short period of time. However, in such a dynamic industry, legislation needs to be constantly reviewed and quality of service should be kept at high standard.
y y y
y y y y y
SEEWOOSAHA Taruna.D (1014765) HOSANY Fatimah (1017442) JOOMRATTY Zainab Azra (1017937) BHAGRAZ Shiksha (1016879) BHUNNOO Bibi Rubeena (1011552)