Asset Management Company (AMC) is an organisation that manages and invests pooled funds. It invests individual investors’ money in different securities.  

An Asset Management Company (AMC) isa financial institution that collects and manages a pool of funds from retail investors. It allocates them to securities with specific investment goals. For a fee, the company provides professional investment management, better liquidity and offers ‘distributors that individual investors usually cannot do by themselves’.

Diversification of a portfolio involves investing in securities that don’t move in the same direction. Investment firms in asset management originate their funding from investors via a range of mutual fund schemes and manage investment vehicles such as mutual funds, hedge funds (e.g. pension plans), and other types of investments. Management and service fees are the means by which these companies earn their revenue.

Most individual investors are limited to a single investor, and the diversification benefits of AMCs stem from their ability to pool investor funds. This structure permits investors to access a more extensive selection of securities with fewer investments and eliminates the requirement for high minimum investment requirements that are commonly encountered during direct market investments.

Asset Management Company Setup

Any NBFC or other eligible company, as defined in Schedule I of the Rules, must submit a separate application to the Securities and Exchange Commission of Pakistan for permission to conduct asset management business. Form-II is required by the Commission to submit an application and pay a non-refundable processing fee.

Rules & Regulations of Asset Management Companie

The Non-Banking Finance Companies (Establishment and Regulation) Rules, 2003, and the Non–BankING Finance Corporations and Notified Entities Regulations, 2008, both regulate Asset Management Companies based on their fee structure and operational requirements.

The Commission can grant an Asset Management Company licence to any eligible company, including NBFCs, that meets the eligibility criteria listed in Schedule I.

Table: A part of Schedule I with regards to Asset Management Company

Registration of Asset Management Company

The requirements for a company to register as an Asset Management Company are stipulated in these rule:

It is registered as a public limited company under the Companies Ordinance, 1984 (XLVII of 1984)

The company must have a minimum paid-up capital of two hundred million rupees.

No director, officer, or employee of the company has been convicted of fraud or any offence involving a breach of trust.

No director, officer, or employee of the company has been declared insolvent, suspended payments, nor has there been any settlement or arrangement with creditors.

The promoters and directors of the company must, to the satisfaction of the Authority, demonstrate financial soundness, integrity, and possess the relevant knowledge and experience required to effectively manage and operate an Asset Management Company.

Licensing Conditions for Asset Management Company

Any NBFC or other eligible company, as defined under Schedule I, is required to submit a separate application to the Commission for each category of business it intends to conduct. The application must be filed in Form-II and accompanied by the applicable non-refundable processing fee as prescribed by the Commission.

Process Fee of Asset Management Company

NOC / Permission = Rs.250,000

Licensing = Rs.500,000

Cancellation of Registration

When an Asset Management Company fails to meet the requirements of the Ordinance, in breach of its own rules or regulations, or performs its duties poorly on the part of a trustee it represents, the Commission may decide that such action is necessary to protect the interests of unit holders. When faced with this situation, the Authority has the power to cancel registration for the Asset Management Company either by written request or through a report submitted by the trustee.

No order shall be issued unless the Asset Management Company has first been given a fair opportunity to present its case.

Restrictions on Asset Management Companies

An Asset Management Company is subject to specific limitations. These restrictions are outlined below. It cannot:

Merge with, acquire, or take control of another Asset Management Company or any scheme only after receiving prior written approval from the Authority for such merger, acquisition, or takeover.

Pledge any securities held or beneficially owned by a scheme, unless the pledge is made solely for the benefit of that scheme.

Accept deposits from any scheme

Provide a loan or advance funds to any person

Engage in any transaction through a jointly held account with another party.

An Asset Management Company shall not apply any portion of its assets to real estate, except for property used for its own operations.

Make any investment intended to give management or control to the scheme.

Employ, whether directly or indirectly, any of its directors, officers, or employees, or any immediate family member of such individuals, including spouses, parents, children, brothers, and sisters, as a broker.

Obligations of Asset Management Companies

An asset management company shall:

Be required to manage the assets of the scheme in the best interest of the unit holders, acting in good faith, with due care and competence, and without seeking any unfair benefit for itself, its related parties, or its officers.

Be accountable to the trustee for any reduction in the value of the scheme’s assets when such loss results from its negligence, reckless conduct, or willful action or omission.

Be accountable for the actions and failures of any person to whom it delegates managerial functions, treating such actions and failures as its own.

Maintain proper books of account and records at its principal office so that a clear and accurate view can be formed of the scheme’s assets and liabilities, income and expenditure, all scheme-related transactions, and all amounts received from the issuance of units and paid out on redemption or distribution.

Prepare and deliver the annual report, along with copies of the balance sheet, income and expenditure account, and the auditor’s report of the scheme, to the unit holders within four months of the close of the accounting period. The balance sheet and income and expenditure account must comply with the requirements specified in Schedule II

Within two months of the close of the first half of its accounting year, the Management Company shall prepare and submit to unit holders and the Authority a profit and loss account and a balance sheet as at that half-year end, whether audited or otherwise.

Maintain an updated register of scheme unit holders and notify the Authority of the location where the register is maintained.

Appoint a qualified Chartered Accountant as auditor at the time a scheme is established and whenever a vacancy arises. The appointed auditor must remain independent from the Asset Management Company and the trustees.

Submit a copy of the annual report to the Authority within four months after the end of the accounting period, along with the balance sheet, income and expenditure account, and the auditor’s report of the scheme. This submission must also include a statement specifying (1) the total number of unit holders, and (2) details of the personnel of the Asset Management Company, including executive, research, and other staff.

Provide a copy of the company’s annual report, along with the balance sheet, income and expenditure statement, and the auditor’s report, within four months after the end 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, the remuneration shall not exceed three per cent of the scheme’s net assets at the end of each financial year, and after that period, it shall be limited to two per cent of those assets.
• Up to fifty percent of the portion of the dividend distributed by the scheme that exceeds twenty percent.

Short sale not allowed

Under Rule 14, no scheme may carry out a short sale of any security, whether listed or unlisted.

Appointment of Trustees

Every investment scheme seeking authorization must appoint a trustee, subject to approval by the Authority. The following conditions apply to the appointment of a trustee. A trustee shall be:

• A scheduled bank holding a valid licence under the Banking Companies Ordinance, 1962 (LVII of 1962), and operating for a minimum period of five years; or
• A trust company that operates as a subsidiary of a scheduled bank; or
• A foreign bank that is licensed to operate as a scheduled bank in Pakistan and also provides trustee services at an international level; or
• An approved central depository company that has received authorization from the Authority.

Trustee and the asset management company to be independent

• The trustee must remain completely independent and must not have any relationship with the asset management company.
• No director or employee of the trustee may participate in the operations or management of the company.

Remuneration payable to the trustee

A trustee is entitled to receive the fee or remuneration approved by the Asset Management Company.