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Critically assess the factors affecting the performance of the fund management industry both locally and globally.

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by

Soogund Halimah

on 21 January 2015

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Transcript of Critically assess the factors affecting the performance of the fund management industry both locally and globally.

Critically assess the factors affecting the performance of the fund management industry both locally and globally
Introduction
A Presentation By:

BADÈRE Mary Jenny Sharone
BAICHOO Damini
BHUGALOO Nabil Muhammad
GUKHOOL Avanish Shankar
HARROO Janannee
JEETOO Humaïra Bibi
IRAPAH Teeraj Robbins
SOOGUND Nusrat Bibi Halïmah
Variables forming the Fund Management Industry(FMI)
Investor
Role: commit finance, bear risks
Source of finance
Investor's knowledge and investment culture
Risk Factor = Nature of investor
Types of investor
Objective
Success Stories
Warren Buffet
Benjamin Graham
John Neff
Peter Lynch
Fund Manager
Role: Controls the fund's trading activities
Skills and experience
Investment Style
Services provided by Asset Management Companies
Global Example
Local Example
BlackRock
Goldman Sachs
JP Morgan
Anglo
PrimeCapital Management limited
SBM Securities
MCB Capital Markets
Investment Products
Role: pool of monies garnered to invest in various ways
Objective and behaviour of the fund : how it is traded?
Main types of funds:
Mutual Fund
Exchange Traded Fund
Hedge Fund
Unit Trusts
Pension Fund
Variables forming the FMI
Overall Factors affecting FMI
Economic Indicators
Economic model
(Planned Vs Laissez-faire
Vs
Mixed economies)
The composition of the private sector and public sector investment trends will affect the FMI.
The private sector:

more aggressive
The public sector:

regular and stable income.
Example:
US vs China

Risk Management
allows to control and predict the portfolio or fund action and take necessary measure against unfavorable trends in the fund’s performance.
Operational risk
Liquidity risk
Credit risk
Derivatives risk
Portfolio Management Risk:
High yield risk
Leverage Risk
Index tracking error
Risk Management
Systematic Risk
V/S
Unsystematic Risk
Systematic Risk
Affects the overall market, not just a particular stock or industry
Unpredictable
Cannot be mitigated through diversification, only through hedging or by using the right asset allocation strategy.
Example: The 2007 financial crisis
Capital Asset Pricing Model

Unsystematic Risk
Company- specific or industry-specific hazard that is inherent in each investment
Can be reduced through diversification
Examples:
a new competitor
a regulatory change
a management change and
a product recall.
Emerging Markets
Law and Regulations
Technology
Company Transaction
and news
Global trends & Factors
Commoditisation of the fund management in many countries.
Composition of various funds differs
Active funds still control the majority of assets due to its high risk and high return policy.
US holds the highest share (around 40%) of the worldwide capital markets and conventional funds
Index tracking practice has become more saturated. Almost 70% of ETFs US market is controlled by just 3 companies –
BlackRock, State Street and Vanguard.
Greater role for technology
Assessment of these Global Trends
Analysis: Global Trends – China and India
The World Bank predicts that by 2030, more than two thirds of global investments and half of global accumulated capital stock will be in developing economies.
However, at present, almost 70% of the world’s capital stock resides in the developed world and in 2000 only 20 % were found in developing countries.
Two powerhouses of developing countries are China and India

Factors affecting their FMI:
Changing demographics
Technology
Expertise and know-how

Analysis: Global Trends-Singapore
A small state island
Yet, one of the key asset management industries in the Asia Pacific
Factors contributing towards Singapore’s Growth as a major hedge fund centre
Singapore’s asset management performance
The total assets under management in Singapore have increased by approximately 39.8% during the year to 2009. It continued to increase reaching S$1818billion in 2013 as per the Asset Management Survey Public Report.
Diversification of funds
Mauritian FMI
trends and
factors

How does the investor affect the FMI?
How does the fund manager affect the FMI?
How do the investment products affect the FMI?
Mainly developing countries
Have fluctuating trends
Usually bear higher risk : lower liquidity
May lack adequate financial, political and legal structures
Uncertain tax position
Need for transparency
Tax policy:
impact on dividend and capital gain/loss
Example:
UK’s dividend tax rate (10 - 37.5%)
Fiscal and monetary policy:
interest rate and flow of money in the economy affects FMI
Legal framework:
protection of investor, money laundering
US and EU introduced regulatory bodies such as FATCA and AIFMD to support their FMI
Facilitates the whole process of trading
Makes investment products closer to investors
Allow fund managers to stay up-to-date
Gives competitive edge to FMI’s variables
BlackRock: Aladdin software
SEM: CDS
Market Risk
Depends on the index trend of the market
If the market is confident about the company and its products then prices can escalate, else prices can decline.
Economic Risk
Depends on the evolution of the main sectors of the country
A downturn in these sectors may negatively impact the value of the FMI.
Mergers or acquisitions or take overs raise value of the company
New projects & expansion projects will affect the prices of share of that company.
Scandals involving the company itself will negatively impact the company.
Example:

Merger of Disney-Pixar
Lottotech going public
Enron and
Whitedot scandal
Mauritian FMI - Trends
Abolition of exchange controls
No tax on dividend or capital gains
Development of offshore centre with the help of DTA-Double Tax Agreement and IPPA with 34 jurisdictions
Future potential markets and preferential access and rates
Involvement of BRICS countries
Trade liberalisation and globalisation
Mauritian FMI - Factors
Economic Indicators
A stable GDP trend
A constant GNS
Fluctuating inflation rate
Mauritian FMI - Factors
Good Governance :
Mauritius: investor friendly environment, stable institutions and macroeconomic stability
Good Foreign Relations:
Opening gateway for Mauritius to foreign exchanges and derivative products.
Mauritian FMI - Factors
Regulatory Bodies
Stock Exchange of Mauritius
SEMDEX, SEMTRI, DEMEX, SEM-7 and SEM-10.
Market movements: affecting investors’ investment decision
Mauritian FMI - Factors
I
nvestment Dealers
Examples:
MCB Stockbrokers Ltd, Bramer Capital Brokers Ltd
Insurance companies
Examples:
Anglo Mauritius Assurance Society Ltd
Global Business (GBC 1 and 2)
Reasons to choose Mauritius as an offshore investment is its attractive fiscal regime
Examples:
ABAX Corporate services Ltd, Imara Trust Company (Mauritius) Ltd
Investment Network in Mauritius
Assessment of Mauritian FMI
Lack of active management: Risk averse
Lack of awareness : 100000 investors only
Lack of skilled experts and fund managers
BOM:
supervisory powers
SEM:
our stock market faces low volumes and liquidity issues
Our products are not diversified
Need to Liaise with foreign exchanges : Johannesburg stock exchange
Conclusion
Fund management industry in many countries = the need to better invest one’s capital; investment has multiplier effect on the economy
Though, how are the funds managed in various countries differs.
Role of Globalisation
Mauritius: seize the opportunities
Change is inevitable, need for better adapting skills
Investors: better judgement and critical perspective
Depicts how sound and effective our financial markets are
Any change in those indicators will directly or indirectly impact investors’ and fund managers’ choice of managing their funds:
Gross Domestic Product
Inflation Rate
Interest Rate (borrowing or lending rate)
Gross National Savings
Exchange Rate
There is little doubt that Africa will be the next big leap in the FMI and it represents an enormous untapped potential.
However the industry in South Africa has been saturated over the past few decades and fund managers are turning their attentions to other sub Saharan countries
World bank predicting growth in Sub Saharan countries in 2012-4.4%,2013 4.9%, 2014 5.2%
This steady growth implies middle class in Africa on the rise continuously, implying a promising future for FMI
DD for consumer and luxury goods on the rise but also investment products
Challenges:
Unstable political climate
Corruption
Cultural and language differences
Proper regulatory frameworks need to be set up .
Analysis: Global Trends-Africa
Mauritian FMI - Factors
Regulatory Bodies
Bank of Mauritius - BOM:
Applies monetary policies and controls repo rate.
Financial Services Commission - FSC:
License, regulate, monitor and supervise the conduct of business activities in the financial sector.
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