Books closed on open-ends

Open-ended funds allow fund managers to issue fund shares when investor demand is high enough and to redeem shares when investors wish to sell.

At present, only close-ended funds operate in Vietnam, but the State Securities Commission (SSC) is expected to give the go-ahead for open-ended funds by the end of this year in a bid to lure investors back to local stock market.

But, most industry managers said the current market outlook meant it was too risky to introduce such funds. They said share redemption pressures in a falling market were typically high and could damage fund management companies’ operations.

“With the stock market remaining illiquid and the investment environment [for mutual funds] immature, the risks of losing liquidity are typically high. Fund management companies have to be very cautious,” said an executive who is  managing investment funds worth $1 billion.

Fund managers have been calling on the SSC to allow open-ended funds. But the slump in Vietnam’s securities market this year, with the benchmarks of the two stock exchanges at record low levels and poor market liquidity mean fund management companies would rather enhance existing closed-end funds.

“At the time when we [fund management industry] discussed launching open-ended funds more than one year ago, the VN-Index was at around 500 points. We didn’t expect the benchmark could tumble to 380 points as is currently the case,” said Nguyen Khac Hai, deputy chief of SSI Asset Management.

Hai indicated that although his firm had previously prepared to run open-ends, there were no plans to do so at present. Instead, the firm would enhance portfolio management of existing close-ends in the new year. “I see little potential for launching open-ended funds within at least the next 12 months.”

Open-ends require more complex management conditions such as high-tech software for managing investors’ shares redemption, sufficient networks with custodian and depository banks, and a thorough grasp of legal framework.

Sources familiar with the matter said bigger firms needed up to a year to prepare those conditions while  minor firms remained indifferent to open-ended fund model at the moment due to market doldrums.

Among the major firms, insurers like Prudential and Manulife are expected to pioneer the launch of open-ends, as some of their mutual funds are already operating in a similar fashion to open-ends.