City of London Investment Management Company (CLIM) has come down hard on the Bangladesh Securities and Exchange Commission for its decision to allow asset management firms to extend the tenure of closed-end mutual funds without securing approval from unitholders.

Closed-end mutual funds are investment funds that gather a fixed pool of money for 10 years from a number of investors and re-invest them into stocks, bonds and other assets. After 10 years they are supposed to be liquidated and the value of the funds distributed among unitholders.

But on September 16 last year, following calls from some asset management companies, the BSEC allowed extension of closed-end mutual funds’ tenure by another 10 years.

Subsequently, LR Global Bangladesh Asset Management Company extended the tenure of six of its closed-end mutual funds, Race Asset Management 10, and ICB Asset Management Company one by another 10 years.

“The BSEC, in our view, may have done irreparable harm to the mutual fund industry by acquiescing with closed-end mutual funds that are attempting to extend their lives without unitholders’ approval,” said CLIM in a statement on October 1.

The asset management companies have treated investors’ money as their own by extending the tenure of the funds without the requisite extraordinary general meetings and unitholder votes while continuing to collect fees on unitholders’ assets.

“There should be no misunderstanding that we, the unitholders, own the assets of the funds. These assets do not belong to the mutual fund management companies or the BSEC,” the British firm said.

The move would deter domestic and foreign investment flows into the capital market, it added.

Saifur Rahman, spokesperson of the BSEC, said the stock market regulator gave the go ahead for the tenure extension following government order.

Reaz Islam, chief executive officer of LR Global Bangladesh, said his firm provides huge dividend to unitholders, so the extension of the tenure would be beneficial to them.

As of 30 September 2019, CLIM’s assets under management stood at $5.3 billion and it has substantial holdings in some of the closed-end mutual funds of Bangladesh to block a legal extension of tenure, said Pavle Gegaj, investment analyst of CLIM, in response to an e-mail.

The closed-end mutual fund industry will suffer lasting damage unless the actions are reversed and the rule of law is reasserted to protect investors’ rights ahead of the interests of asset managers and related parties, he added.

Abu Ahmed, a stock market analyst, said the BSEC’s decision was against the interests of investors, so they lost confidence in the regulator and the market.

“I think it is an illegal decision as only unitholders can decide the fate of an asset as they own it,” he said, adding such a decision deprived many investors from getting good profits after liquidation.