Meet Adnan Siddiqui - widely known as a turnaround specialist in the mutual fund industry. Currently working as the Chief Executive Officer for Primus Investments, Adnan carries more than two decades of experience in the NBFC sector at senior positions. Since 2002, he has been playing an instrumental role in the development of asset management sector. His last assignment was with Askari Investment Management Limited as the CEO.
In this interview with BR Research, Adnan talks about his turnaround stories, the potential areas that he is aiming to tap and sheds light on his ingenious ideas to provide helping hand to NGOs, providing excellent service to our society and targeting to give perpetual life to charity organisations. Below are the edited transcripts of the conversation:
BR Research: You are known as a turnaround specialist. Would you like to share with us your success stories in this regard?
Adnan Siddiqui: I started off the mutual fund sector back in 2002 from Arif Habib Investments. It was the time when mutual fund was a new-born sector, not many people knew about mutual funds back then. Since I had associations on the treasury and capital markets side, I took on the responsibility to energise the sector through creating links between the two distinctively separate markets. Here, I started the initiative with sophisticated investors including banks and financial institutions. I prepared structured products to create inroads for Income Funds to enter into trading rooms of Treasury Departments of Financial Institutions.
It was an effort to build the confidence of financial institutions and the corporate sector on the mutual funds sector.
Honestly, it was a tough time to educate investors about the basics of mutual funds and the advantages associated with them. We can say mutual fund awareness was non-existent at that time. I personally went through the process of meeting and discussing with treasurers and discussed the mechanics in their own language. Today, getting funds from financial institutions and banks is a smooth route as they understand and appreciate the disciplines adopted by the sector. Mutual funds manage portfolios like the banks and financial institutions do. Hence, it was a difficult proposition to convince them to buy AMC's fund management skills and pay fund management fees. Subsequently, we recognised that it was the time to structure products and to make mutual funds part of those structures to gain inroads to treasurers' portfolios. I delved into streamlining the inefficiencies present in the market. This way, I tapped the interest rates differential of the two distinctive markets and fortunately I was able to create the desired structure.
The basic challenge for me was to create mutual fund as one instrument against which one can borrow, in the same manner as treasury bills and TFCs are treated. I indulged in discussions with banks, treasurers, NBFCs, and I was able to convince a few NBFCs and banks to take exposure of our funds. Gradually, industry assets under management started picking up on this structure.
Within one and a half year, Arif Habib Investments was able to generate Rs 7 billion funds under management for open end funds. During the same period, we saw that confidence of treasurers and financial institutions also started picking up. At that time, there were some ICP lots of closed-end funds whose management rights had been privatised. Perpetual-life close end funds offer stable revenue to asset managers. A big market player bought management rights for Rs 1.5 billion portfolio at a price of around Rs 175 million, it was a good transaction for our competition and our management felt left out.
Since we were tapping market inefficiencies and institutional confidence on our team was high, I suggested our management to create our own closed-end funds rather than going for privatisation of next lots and buying them at a premium. We created the structure and started marketing. Initially, our management thought that market appetite won't be higher than Rs 500 million worth of funds in closed-end funds. We then tested our abilities and we targeted Rs 1 Billion. Pre-IPO numbers became extremely positive and we went in for raising the issue size to Rs 1.5 billion. All factors became positive and most of pre-IPO investors realised return of 30% in one day.
Subsequent to the success, we launched another closed-end fund of Rs 3 billion. Though there were some challenges, we were able to get full subscription. That way, Arif Habib Investment went all the way from Rs 450 million of sponsor investment to Rs 11 billion in two years.
It was the time when I was into product development, marketing, and fund management of fixed income. So I thought of starting up a company with equity ownership involving other partners. Return on equity in the sector seemed very attractive, which prompted other companies to jump into this area. Finally, we started AMZ asset management and within a year we achieved Rs 8 billion. The confidence level of investors on my win-win structures was high and these institutional investors entrusted us with core capital (time restricted) of over Rs 650 million in two funds (against a call for Rs 500 million). No other AMC has ever generated core capital from the market. It was 2005-6, at that time a billion rupee figure was considered very substantial
At Arif Habib, I also experienced 2008 financial crisis, it was the time when redemption pressures were at peak and industry AUMs nose-dive. Arif Habib Investment was no exception, its AUMs also tumbled to Rs 8 billion. These are the real testing times for fund managers and marketing professionals of AMCs. Here, my strategy was to boost investor confidence. From day one, I worked on bringing transparency by disclosing our portfolio composition and other key data related to fund management. This was done by disseminating daily fact sheets on the website. We went to the investors and convinced that these are times to invest rather than disinvest.
The benefit was that investor confidence boosted and our assets under management doubled despite the fears prevailing that broker-backed AMCs cannot survive and only bank-backed AMCs can prevail. It was a myth that still has not been broken down completely. I was strongly vocal on the subject, there is no such thing as bank-backing. It's the fund management team that matters! Only the fund managers can protect from negatives and only they can outperform in positive cycles.
Subsequent to this, I took on a new challenge by joining Askari Investments. On the face of it, it was a difficult proposition for me as Askari Investments was facing serious concerns including high redemption pressures, huge non-performing loans, investor disgruntlement, auditors' concerns, SECP's concerns on various matters. The sponsors were contemplating exit from the industry but their substantial investment was stuck in the AMC and it was practically impossible for them to exit without realising huge losses. I looked at the dynamics and realised that if the company comes out of trouble, it has the potential to become the biggest and best AMC in Pakistan.
I had always worked in the background and I kept a low profile. It was an opportunity to face the biggest challenge of my life and getting the medal on my shoulder.
Alhamdulillah, the issues got fixed within 18 months. It became the best performing company in all fund categories and also became the fasted growing company. Its rating kept rising and it was poised to become the best when the ownership structure changed.
BRR: Mutual fund industry has progressed well over time. Are you contented with this industry's current standing?
AS: This industry is great! But what's happening today is not great. In fact, 15-16 companies are operating in this sector, mostly owned by large banks with huge distributions networks but generally none of them is doing justice to its very concept. ie "Channelizing savings for economic prosperity". We are not promoting savings culture. It is a beautiful product for individuals, families and the society but unfortunately we have gone in the race of asset gathering. Over the last one year, only 10,000 unit holders have been added, which is sad.
BRR: Since you are working on introducing "Charity Funds", tell us how they will be operated and where did the idea come from?
AS: Dr Adeeb Rizvi is my uncle and my father's class fellow at Dow Medical College. He has always inspired me for what he has done. Besides, I also admire Edhi sahib, Adeeb Rizvi sahib, Bari sahib for their lifelong efforts. It's through that inspiration that I worked on translating my dreams into a structured formulae and a win-win equation for my stakeholders' 'ie NGOs, the donors and the asset management company. I also acknowledge that Pakistanis are a charity giving nation. It's in our religion and imbedded in our blood. But on the other hand, NGOs and charities have some structural difficulties and shortcomings:
On the onset, charities are formed by individuals or group of individuals, and formed with the very principle of 'not for profit'. From day one, their expenses are committed but the revenue stream is up in the air; the amount and timings of donations are uncertain.
Secondly, when individuals start, they work with passion and dedication. But, man has a finite life! We need to think what will happen to these NGOs after say 20, 25 or 30 years. Will the second generation be willing to take on the responsibility, and even if they do, can we assure that they will continue the objective with this much zeal or will their interests be aligned with not for profit objective? The answer may be yes or may be no. We need to bring the continuity in the quality of their operations. It can only happen when we initiate institutionalisation of these organisations. For that purpose, we need professionals. In other words, we are working to provide perpetual life to these NGOs through structures.
We have seen many groups starting NGOs and did not progress Adamjees, Bawanis, Valekas are few such examples. My idea has always been to address the shortcomings of different NGOs and add the positives of asset management company in one institution. I want to create endowment fund that collects donations and the profit earned can then be distributed to the NGOs so they can plan for their future.
Thirdly, our NGOs do not have distribution points. It's a hassle to visit their locations to donate funds. We need to make charities available at various distribution points. Just like one can get mobile prepaid cards at retail stores, we want to make charity cards available at various distribution points. The endowment fund will then have different unit classes, such as unit class 'A' represents Edhi Centre, unit class 'B' represents Shaukat Khanum.
So it will be yet another fund whose beneficial owners will be pre-decided in the form of unit holders and every time donor donates, funds will be credited to unit holder's accounts
Moreover, there are many people in Pakistan, who do not believe in interest based earnings, and therefore prefer current accounts. My question is: they put money in current accounts and the profit is made on it, but they don't receive it, so where does that profit go? It goes to the kitties of bank owners, and hence, current account is not the solution. Rather, if you do the same here, you invest in charity fund, you can have the funds whenever you want, while whatever the profit is earned, it goes to the beneficiaries (NGOs in this case).
This way, I am facilitating two things here: one is distribution or resource mobilisation, second is the fund management of donations. The expertise of charities and NGOs is only in the area which they undertake let's say burns, cancer, kidney, or other specialised areas, but it's not their duty to raise funds or to create distribution points or market. By creating charity funds, we can provide them with economies of scale. If these NGOs start marketing individually, it can cost them an arm and leg, so we can do a combine marketing for them.
For distribution, we need to co-ordinate with other industries, we need to reach out to other cities including Hazara, Gujrat, Swat, Sialkot, and we need to make the product available everywhere from shops to shops. It can be done through telcos, Microfinance banks, banks, such that even if someone thinks of donating in any denomination, they can have access.
BRR: What is the progress in this regard and when do you see it actually happening?
AS: I think it will take another six months because trust deeds and offering documents will be completely different from conventional funds. Moreover, it will also involve tax authorities, so there are various aspects to it. I have had initial discussions with SECP on an individual level; they had their own concerns on the asset allocations, type of fund: Islamic or conventional, fee level, so there have been many arguments on the mechanics but conceptually there is no one who could disagree.
The real challenge would be in its implementation; creating strategic partnerships with FMCGs, Telcos, banks and other unconventional distributors and finally the marketing to build donors confidence.
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