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Tuesday, August 9, 2011

Sri Lanka IPO fund to weed out mispriced issues

Aug 07, 2011 (LBO) - A fund targeting initial public offers by National Asset Management (NAMAL), Sri Lanka's firm unit trust or mutual fund manager says it will weed out over priced IPOs and use a preferential allocation rule to increase returns.

"Retail investors have faced a significant challenge in evaluating IPOs in recent times," Avancka Herat, Executive Director of NAMAL said in a statement.

"With many IPOs in the pipeline in the next few years, investors in the Fund will benefit from the professional selection of IPO securities and portfolio management by NAMAL’s experienced fund management team."

In recent months several IPOs have traded below their issue prices, due to over pricing as well as due to negative sentiment, though some retail investors have not been able assess the difference.

The fund will invest at the IPO offering stage and in post-IPO securities for a period of one year. The Fund is targeted at retail investors with a minimum investment of 10,000 rupees.

The IPO fund would invest in the post-IPO stage and in other equities in the market if the managers think that IPOs are not properly valued, NAMAL said.

In Sri Lanka unit trusts have a preferential 10 percent allocation. It is difficult to get more than a few hundred shares in hot IPOs.

NAMAL says investors in their fund will be able to get a "meaningful allocation" also avoid the hassle of applying for each IPO perhaps with bank guarantees.

The NAMAL IPO Fund says it will not charge an exit fee to investors even if they redeem within a short period of the initial investment. The NAMAL IPO Fund is licensed by the Securities & Exchange Commission of Sri Lanka as an open-ended Unit Trust.

Founded in 1991, NAMAL operates eight funds including, NAMAL Acuity Value Fund, the only listed unit trust, and the NAMAL Amana Fund, the only Shari’ah compliant Unit Trust.

In February 2011, Union Bank of Colombo PLC bought a 51 percent stake in NAMAL, with Ennid Capital (Pvt) Ltd, an investment arm of Singapore based BP De Silva Holdings buying 19 percent. DFCC Bank has a 30 percent stake in the firm.
source - www.lbo.lk