'There is enough liquidity in the market to withstand any negative event' - CEO MCB - Arif Habib Savings & Investments Ltd

BR Research recently met with Muhammad Saqib Saleem who is the Chief Executive Officer of MCB-Arif Habib Savings and Investments Limited. He is a Fellow member of the Institute of Chartered Accountants of Pakistan. He has previously worked at JS Investments, Habib Bank and Atlas Asset Management. He is also a member of SECPs technical committee on Pension under National Financial Inclusion Strategy'.

Below is an edited excerpt of the conversation.

BR Research: Please tell us about MCB-Arif Habib Savings and Investment Limited.

Saqib Saleem: MCB-Arif Habib Savings and Investments Limited is an Asset Management, Investment Advisory and Pension Fund Management Company. The company was formed after a merger between Arif Habib Investments and MCB Asset Management back in 2011. Initially, there were a lot of challenges after the merger because of varying cultures, but we were able to overcome these in a very short span of time, eventually giving the merged entity the title of having the largest client base in the private sector.

As of 31^st January, 2017, we have Rs71 billion under management, which includes 14 mutual funds, 2 voluntary pension schemes and various investment plans for specific clients.

BRR: Customer base in Mutual Fund industry has not grown as expected. What is the reason for it?

SS: I would say that it is the lack of awareness and the culture of savings. The industry over the years has not been able get the right message across due to lack of budgets. On the other hand, the savings ratio in our country is also on the lower side if you compare it with the region.

However, things have slowly started to change, and in the past few years there has been some growth due to three major factors. One is the advisory side; secondly, there is a growing interest in employee funds; lastly, active asset allocation plans that have started over the last three years have generated a lot of interest and their distribution has been largely through banks.

BRR: How big is the employee funds market and what are the main issues in tapping it?

SS: Employee fund market has more money than mutual fund market. The basic problem in the case of employee fund in Pakistan is that we dont have a centralized regulator for it. For example, provident funds have SECP and FBR as its regulators. Provident funds are less than one percent of the entire employee fund market. The remaining funds like pension funds and gratuity funds dont have a regulator.

We have sent a recommendation to the finance committee of SECP suggesting that there should be a separate regulator with specific rules.

BRR: How can MUFAP and SECP come together to increase awareness?

SS: Recently, SECP has allowed mutual funds to charge 0.4 percent marketing expense. We think this will go a long way in addressing the awareness issue. Previously we had very limited budgets to work with, but now we have room to pursue our goals and potential customers. This step by the SECP also comes in with conditions to open new branches nationwide. Outreach will increase with branches, and funds will also spend on all forms of marketing.

All funds also need to submit a plan to the SECP mentioning the number of people that will be targeted, and SECP will periodically carry out a performance audit to make sure that no fund lags around.

BRR: Do you think social media should be used as a serious form of marketing by the mutual funds?

SS: Social media is one of our top priorities and we believe it is the future. The outreach is huge and cost per conversion compared to other mediums is very low. We have a dedicated team that looks after social media and telemarketing.

BRR: Mutual funds over the last few months have received a lot of inflows. Where do you think this money is coming from?

SS: A major trigger for these inflows has been the crackdown by the government and the tax authorities in the property market. There was a lot of floating liquidity, which had to be allocated and a good chunk of it came into the mutual funds. The other trigger has been the strong bull-run, which our equity market has seen over the last one year. People have started to take notice of equity markets again, and this has benefitted the mutual fund industry.

BRR: Do you think there is a bubble developing in the equity market?

SS: Not at all. The overall economic environment is good and the valuations are not that high. The only short-term concern is the Panama case where if the decision is against the market expectations, we can see some downside, but the probability of that is very low. On the other hand, there is enough liquidity in the market to withstand any negative event.

BRR: What is your view on CPEC, and which sectors will have the most impact from it?

SS: CPEC will bring in the growth that has been missing from our economy. Through its power projects, GDP growth will cross 5 percent, which will have a trickle-down effect on everything. However, the government should ensure that local industries interest is protected and we dont sell out all our assets.

Construction related sector like cement, steel and other allied industries will benefit the most from CPEC and we are bullish on these sectors.