Funds loosen strings on redemption periods
Investment funds that extended redemption periods because of adverse conditions in the market have started to cut their notice periods.
The move comes in response to positive factors such as the recent market rally and improved liquidity levels following the government's measures to boost the economy.
Funds that have cut redemption periods – the time investors must wait to receive their cash when they sell a holding – include Permal, Markaz and Jabre Capital.
"Open-ended funds facilitate money circulation as new investors come in, while existing investors offload," Taimur Saadat, a senior analyst at Arab Capital Markets Resource Centre, told Emirates Business. "Money circulation in the market stopped six months ago and has now started picking up, but only at a low level."
The redemption pressure on most funds appears to be easing gradually as renewed buying support appears in the market, boosting liquidity.
Markaz, a Swiss hedge fund firm, and Jabre Capital Partners have already cut their redemption periods. And Permal has announced a phased reduction from 95 to 20 days.
In a letter sent to investors, Permal said: "The 95-day redemption was only a temporary move following the unprecedented market turmoil of September and October 2008."
The return to a 20-day period is being carried out in two stages. The first phase started last month with the redemption period curtailed to 65 days and the second phase will see notice period being cut to 20 days in January 2010.
Funds are keen to ensure fair treatment for all their investors with minimal disruption to the funds' asset allocation programmes.
Jabre Capital Partners, a $3 billion (Dh11bn) Swiss hedge fund firm with a focus on the Middle East, has reduced the redemption time for investors by two months.
The cut applies to the Geneva-based manager's $30 million fund, which focuses on Europe, the Middle East and Africa. The fund has registered year-to-date returns of 20 per cent this year. Another flagship multi-strategy fund with redemption terms of between 90 days and one year, with lower fees for longer periods, has made about 37 per cent to date.
According to zawya.com, the top performers among equity funds during the first half of the year were Babylon Fund, Al Mal UAE Equity, Tijari Investment, Maka seb Emirates and Gulf Islamic Equity. Led by Babylon, all these funds registered results ranging from 29 per cent to 32.25 per cent.
Kuwait-based Markaz has begun paying partial pro-rata redemptions of 25 per cent to investors wishing to sell their holdings in the Markaz Idikhar Fund. The company recently said that it would continue to give partial redemptions subject to the availability of cash.
Al Mal UAE Equity Fund's net asset value is Dh0.68 per unit and the fund's major holdings include Air Arabia (5.8 per cent), Aramex (4.9 per cent) and Abu Dhabi National Energy (4.6 per cent).
Al Mal Capital said in a statement to investors:
"As the rally in the UAE markets continued, driven by higher oil prices and positive sentiment, we took money off the table in anticipation of a disruption to the upward trend."
However, recent news about a possible merger involving Emaar and Dubai Holding's property divisions, combined with weaker oil prices, affected the market negatively, which in turn impacted the funds. And the announcement that some UAE banks had loans exposure to the troubled Saudi-based Saad and Algosaibi groups also affected the fund's performance.
"At the current juncture we seek assurance from the authorities that the stimulus plans and promised bailouts will translate into real action and support for the economy, particularly in Dubai," added the Al Mal statement.
"Guidance as to what may be expected for the remainder of 2009 will be based on second quarter corporate earnings numbers. We continue to feel that this will be a market with schizophrenic tendencies, more suitable for trading than a buy-and-hold approach."
Saadat added: "Most fund managers are reluctant to start open-ended funds. They prefer close-ended funds as they help fund managers in many ways."
Financial experts, citing the bleak global economic situation, say the cycle of redemptions that hit funds last year is still not over.
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