Tighter Management over Inefficient Funds
Restructuring investment funds is one of the first successes contributing to Vietnam’s stock market restructuring. Until 2004, Vietnam’s stock market had no fund management company. But within two years from...
Restructuring investment funds is one of the first successes contributing to Vietnam’s stock market restructuring.
Until 2004, Vietnam’s stock market had no fund management company. But within two years from 2006 to 2007, the stock market developed, the system of business organisations, securities services has seen rapid growth in both the number and size of capital, business and technology, with network of branches and transaction offices spreading across the major cities in the country, which helped investors gain access easier to the stock market.
However, the number of business organisations and service providers for the stock market has rapidly increased while the capacity of capital, technology, expertise, capacity management, administration, particularly risk management, are limited, potentially causing systemic risk, failing to meet the needs of the investor and the issuer. Professional ethics of some securities business organizations is not high, the business segment has not diversified, posing potential risks to the business of the organizations.
Therefore, the State Securities Commission (SSC) has limited granting license of establishment and operation for securities companies and fund management companies to re-evaluate the operations of securities organizations which had been licensed to have a plan to consolidate and organize the activities of these organizations. The SSC has amended and supplemented some new rules to ensure market intermediaries operate stably and effectively, step by step approach international standards, contribute to the maintenance of sustainable development and safety of the stock market. This is the first step in the restructuring of the securities business organizations, including fund management companies.
Implementing the project “Restructuring the stock market and insurers” issued by the Prime Minister in December 2012, the Ministry of Finance issued Circular guiding the establishment and operation of the fund management company and proposed financial ratios and measures to deal with the securities business organisations which do not meet the criteria of financial security. These are legal documents in order to accelerate the process of restructuring the system of fund management companies, and enhance transparency and performance criteria of these organisations. This document also contributes to support state management agencies in the field of banking and insurance to better manage cash flow from these areas and gradually help the agency better control, have the monitoring mechanism and solution to the cash flows from the banking sector and insurance to the stock market. In addition, SSC issued 2 regulations including risk management guidelines in the fund management company and quality assessment under CAMEL criteria. The SSC also formed 3 documents needed to serve the management, monitoring based on risk – a modern approach in international practice.
In the two years 2013-2014, there were 06 fund management companies (12 percent) subject to be withdrawn from the market by various methods such as dissolution or suspension of operation, termination of operations; 02 new fund management companies established under the foreign insurance group also aimed to encourage bank financial institutions, insurance companies to enter the market, while taking advantage of the infrastructure system of the organisation and support the development of new products to market.
Up to the present time, most fund management companies active in the market have safe levels of capital to meet the regulations. Restructuring fund management company recently has been done carefully, but not disturbed the activities and general market sentiment. Until the present time, the number of operating fund management companies are 43 companies, managing more than 200 contracts with a total value of trustees over VND100 trillion.
Besides, the Ministry of Finance, the State Securities Commission have issued regulations guiding the operation of the type of new securities investment funds, such as closed-end fund, member funds, open-end funds, portfolio exchange funds, real estate funds, securities investment company. The new fund is the effective tool to raise capital in many socio-economic areas as well as the platform to restructuring investor base.
Restructuring the investor base has achieved positive results, specifically in accordance with the two trends outlined: Replace generation of closed-end funds with more flexible open funds and mechanisms to protect investors better; gradually replace member funds by transparent public funds (open-end fund). In total 26 active funds, total public funds accounted for 70 percent, in particular 15 open-ended funds, 2 ETFs, 1 closed-end fund and 8 funds members. The size of the fund is estimated at VND7 trillion.