Seventy-nine percent share or unit-holders, mostly 12 corporate houses, of closed-end DBH First Mutual Fund want to convert the fund into an open-end one.
Closed-end mutual funds are investment tools that pool a fixed amount of money for a certain period from investors and re-invest it into stocks, bonds and other assets.
The funds are traded on the stock exchanges and investors can buy or sell the shares in the secondary market. On the other hand, an open-end mutual fund is bought and sold through its asset manager at the fund’s net asset value (NAV).
For example, a unit of DBH First Mutual Fund and Green Delta Mutual Fund was traded at Tk 8.50 and Tk 8.10 respectively on Dhaka Stock Exchange yesterday. However, NAV of the two funds was Tk 9.94 and 9.87 as per the disclosures on September 19.
As part of the move, Bangladesh General Insurance Company (BGIC), trustee of the DBH First Mutual Fund, on Tuesday, wrote to Bangladesh Securities and Exchange Commission (BSEC).
BGIC informed that various investors were requesting it to call a unit holders’ meeting with the agenda to convert the DBH fund into an open-end one.
The securities law allows conversion of a closed-end mutual fund into an open-end one, subject to consent of three-fourths of the unit-holders. BGIC added, “We would like to inform the commission that as per the unit holding confirmation provided by the investors, it is observed that they hold 78.42 percent of the fund.”
On the other hand, LR Global, DBH’s fund manager, in a statement yesterday said some asset managers in collaboration with some institutional investors accumulated material (significant) amount of shares of the two funds directly.
They carried this out via block trade or market intermediaries concealing their identities with malicious intent to engage in price manipulation and/or remove LR Global for personal gains, it said.
It also said EDGE Asset Management and affiliates coordinated with other parties, including VIPB and IDLC Asset Management in the procedure.
“IDLC Investments is also involved in the process,” alleged Reaz Islam, managing director and CEO of LR Global Bangladesh Asset Management, while talking to journalists at his office on Tuesday.
LR Global manages six closed-end mutual funds, but they are buying only two funds although all the funds have the same NAV, he said, adding that they were involved in insider trading and price manipulation.
However, Islam said, there was no scope now to convert the DBH fund into an open-end one after it got extension on August 21.
Islam alleged that VIPB’s open-end funds own 27 percent of illiquid LR Global-managed funds and there was no secondary market for these instruments, including the DBH and Green Delta funds.
Shahidul Islam, chief executive officer of VIPB Asset Management, said they have been buying the units of the mutual funds for about five years as its discount rate was very lucrative.
“We invested in the mutual funds considering their disclosed NAV and underlying assets. But no insider trading was involved,” he said.
“We have stakes in their other funds as well but the two funds’ tenure was to end within a very short time. So, we invested in these two funds though the government extended the tenure for another 10 years last year,” the asset manager said.
“Like other institutions, we want the funds to be converted to open-end ones because we believe that is good for all the investors. Also it is good for the fund manager,” he said.
In September last year, the stock regulator gave nod to the extension of the tenure of closed-end mutual funds. “I don’t oppose the extension. I only want to convert the fund into open-ended,” said Shahidul Islam.
Edge Asset Management CEO Ali Imam said he invested in the units seeing lucrative price compared to NAV.
“We want to convert the fund into open-ended for the sake of our unitholders,” he said, adding that unitholders could exercise the related BSEC rule anytime. Rajib Kumar Dey, managing director of IDLC Asset Management, and Md Moniruzzaman, managing director of IDLC Investments, echoed the same.
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