NIT declares success after underperforming benchmarks

Asset management company relies on poor numerical skills of journalists.

KARACHI: The state-owned National Investment Trust, the largest and oldest asset management company in the country, tried to portray a dismal performance for its flagship funds as a roaring success.

The company’s flagship fund – the National Investment Unit Trust Fund – earned a meagre 7.2% return, compared to the 11.1% return of the benchmark KSE-100 index during the financial year ending June 30, 2012. Yet NIT’s management seems satisfied with the results.

At a press conference held in Karachi, NIT Chairman and Managing Director Wazir Ali Khoja said: “Given the overall economic condition of country, the performance of NIT was good enough in fiscal 2012.” He declined to address why NIT’s flagship equity fund underperformed the broader market.

Instead, the chairman chose to throw out a set of numbers that sounded impressive to an audience of journalists with poor mathematical skills and even poorer knowledge of finance. For instance, he talked about a nearly 70% increase in realised capital gains for the fund, a completely irrelevant number to any person seeking to invest in mutual funds managed by NIT. This number is not even important in determining NIT’s own asset management fees or revenue.

NI(U)T is the oldest mutual fund in the country, first launched in 1962. It is also the largest single fund in the country, with over Rs40 billion in assets under management.

NIT is the only company in Pakistan that manages more equity funds than fixed income funds. Its second biggest fund is the NIT State Enterprises Fund, which is legally allowed to only invest in the stocks of eight government-owned companies (six of which are in the energy sector), manages over Rs21 billion. That fund had an even worse performance, earning a return of around 6.1% during fiscal 2012.

The only NIT fund that outperformed the market was the NIT Equity Market Opportunity Fund, which yielded a return of 18% during fiscal 2012, well above both the benchmark KSE 100 index as well as inflation during the year. NIT manages over Rs6 billion through that fund.

The NIT Government Bond Fund, which has about Rs2.5 billion in assets under management, yielded 9.76% during fiscal 2012, compared to its benchmark of 10.64%. As the name implies, the fund invests only in debt securities issued by the federal government, such as short-term treasury bills or long-term government bonds.

The company’s smallest fund, the NIT Income Fund, which manages about Rs2.2 billion in assets, performed almost at par with its benchmark. The fixed income fund – which is free to invest in corporate bonds issued by private companies – yielded about 12.34% in fiscal 2012, compared to its benchmark yield of 12.38%.

NIT is the largest investment company in the country, with around Rs74 billion in assets under management. In recent years, the company has been assisted through direct and indirect government bailouts. The company owes about Rs12.2 billion to government entities, even after repaying Rs5 billion to the Employees Old-Age Benefit Institution.

The company has also tried to market its mutual funds more effectively, setting up stalls in large shopping malls in major cities across the country. It is also investing in technological improvements, such as offering the ability to redeem units through ATMs.

Published in The Express Tribune, July 6th, 2012.


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