Mutual funds are a trusted investment option for small investors worldwide. Skilled asset managers ensure attractive returns by managing investors’ funds efficiently. In India, mutual funds have gained massive popularity. But in Bangladesh, the situation is quite the opposite. The mutual fund sector is one of the worst-performing areas of the country’s stock market. Due to mismanagement and inefficiency, investor confidence in this sector has hit rock bottom.
While mutual fund investors have faced losses, two leading asset management companies—Race and LR Global—have collected BDT 6.63 billion in management fees over the past 15 years from closed-end mutual funds. Industry insiders believe these two firms bear the most responsibility for the sector’s lack of investor trust.
Currently, the total assets in Bangladesh’s mutual fund sector amount to BDT 101.86 billion. Of this, closed-end mutual funds hold BDT 48.1 billion, while open-end funds account for BDT 53.76 billion. The country has 37 closed-end mutual funds, all of which are listed on the stock market. At present, 35 of these funds are trading at a discount, meaning their market price is lower than their net asset value. There are also 61 open-end mutual funds in operation.
Race manages the highest number of closed-end mutual funds, handling 10 in total. According to its latest financial reports, the company oversees assets worth BDT 22.8 billion, covering 47.5 percent of the entire closed-end mutual fund sector. However, despite holding the largest share of assets, Race has struggled in terms of performance. Based on net asset value (NAV) excluding dividends, the company’s five-year compound annual growth rate (CAGR) stands at a negative 2.7 percent. Due to weak investor interest, all of Race’s funds are currently trading at a discount. As of Wednesday (March 19), unit prices for its 10 mutual funds ranged between BDT 3.20 and BDT 7.
Even though investors have faced losses, Race has earned a substantial amount in management fees. From 2010 to 2024, the company collected BDT 5.18 billion from mutual fund income.
In addition to closed-end funds, Race also manages two open-end mutual funds. Investments from these funds have been allocated not only to listed securities in the stock market but also to unlisted securities and the money market. However, some of these unlisted investments have failed to generate returns, raising concerns among investors. As of December last year, Race had invested BDT 6.35 billion in unlisted securities at purchase price. According to the market value, the investment is worth BDT 5.87 billion. These investments were primarily made in Multi Securities & Services Limited (MSSL), Padma Bank Limited, Regent Spinning Mills corporate bonds, and Premier Bank Limited subordinated bonds.
Chowdhury Nafeez Sarafat, a former banker, obtained a license for the asset management company Race Management PCL in 2008. He was joined by Dr. Hasan Taher Imam, a former Wall Street executive. Initially, the company gained attention through various workshops, promising to revolutionize the mutual fund sector in Bangladesh. But in reality, the outcome has been quite the opposite. Due to mismanagement and irregularities, investors suffered significant losses.
There are also allegations that Race leveraged its political connections, particularly with intelligence agencies under the previous government, to keep regulatory authorities in check. As a result, the Bangladesh Securities and Exchange Commission (BSEC) reportedly did not take any action against their misconduct. Instead, BSEC’s former top officials appeared to favor Race over the past 15 years.
There are also allegations that when several of Race’s funds neared expiration, it influenced government intelligence agencies to pressure the Ministry of Finance by submitting reports claiming that liquidating these funds would negatively impact the stock market. Based on this report, the Finance Ministry recommended extending the tenure of closed-end mutual funds by another 10 years. Following this recommendation, BSEC issued a directive allowing closed-end mutual funds to be extended up to 20 years.
Attempts were made to contact Race Chairman Chowdhury Nafeez Sarafat and Managing Director and CEO Hasan Taher Imam for their comments on these allegations, but they did not respond.
Market insiders believe that the regulators should have first removed the asset managers responsible for the downfall of the mutual fund sector and then appoint administrators in their place. However, that did not happen. Had such action been taken, investor confidence in the sector could have been restored. Keeping those involved in past irregularities will not bring meaningful change.
Saiful Islam, president of the DSE Brokers Association of Bangladesh (DBA), told Bonik Barta, “No stock market in the world can develop without mutual funds. These funds are institutional investors by nature. The top priority for reform should be figuring out how to revive this struggling sector. We all know what has happened here over the past 15 years. Unless the past irregularities are addressed, there’s no way to improve the mutual fund industry. Asset managers who fail to generate returns for unitholders should not be allowed to charge fees, or at the very least, they should only be able to recover actual expenses. Also, extending mutual fund tenures without consulting unitholders was completely unjustified. This issue needs a fair resolution.”
LR Global currently manages six closed-end mutual funds with total assets worth BDT 7.7 billion, which accounts for 16 percent of the sector’s total closed-end fund assets. These funds have invested BDT 2.16 billion in unlisted securities at purchase price, but their market value has now dropped to around BDT 1.11 billion. The investments were made in Energypac Prima Limited, Unicorn Industries Limited, and Bangladesh News 24 Hours Limited. Excluding dividends, LR Global’s five-year CAGR return based on NAV stands at a negative 0.9 percent. Despite this, the firm has collected BDT 1.45 billion in management fees over the past 15 years. All six of its funds are currently trading at a discount. As of March 19, unit prices for these funds ranged from a high of BDT 5.40 to a low of BDT 3.50.
Reaz Islam, the CEO of LR Global Bangladesh, worked at Citigroup in the United States for 18 years. In 2008, LR Global Bangladesh Asset Management Company Limited obtained its asset management license. Investors had high expectations that, as an experienced Wall Street executive, he would bring strong fund management expertise. However, allegations suggest that his investments in unlisted securities had put unitholders’ interests at risk. Due to irregularities in fund management, the Bangladesh Securities and Exchange Commission (BSEC) has fined LR Global multiple times in the past. Most recently, there have been allegations of controversial investments in shares of Padma Printers (now Quest BDC), which was traded on the over-the-counter (OTC) market, using mutual fund money.
Attempts to reach Reaz Islam for his comments were unsuccessful.
Former BSEC chairman Faruq Ahmad Siddiqi told Bonik Barta, “A large number of mutual funds entered the market at once, mostly in 2010 when the stock market was booming. However, the market hasn’t performed well since then. Moreover, the institutions managing these funds may lack the qualified professionals needed to make proper investment decisions. Investors put their money in mutual funds because they trust that skilled professionals will manage their funds and generate returns. But the reality is, asset managers often fail to invest with proper analysis and commitment to protecting investors’ best interests. That’s why the mutual fund sector in Bangladesh hasn’t progressed. If any fund misuses investors’ money, it’s up to BSEC to identify and take action against them.”
Industry insiders point out that while the Beneficiary Owner (BO) accounts of mutual funds are controlled by custodians, the bank accounts remain under the control of fund managers. This allows fund managers to misuse cash assets. Additionally, trustees are supposed to oversee where the fund’s money is being invested. Globally, mutual fund assets are not invested in unlisted securities. However, Bangladesh has made an exception, leading to misappropriation of funds. The failure to take action against the irregularities of Race and LR Global has encouraged other firms to follow suit. Allegations of fund misappropriation have also surfaced against asset management companies UFS Asset Management and Alliance Capital. So far, BSEC has not been able to recover these funds.
DSE Chairman Mominul Islam told Bonik Barta, “Bangladesh has more asset management companies than necessary for a profitable mutual fund industry. India, with its vast stock market, has 44 asset management firms, while Bangladesh has 67. This has led to unhealthy competition and increased irregularities. Since the sector hasn’t been brought under strict accountability, misconduct has only grown. In some cases, instead of stopping these violations, the regulators themselves have been complicit. Trustees have also failed in their responsibilities. If an asset manager fails to operate transparently or protect unitholders’ interests, trustees have the authority to replace them. However, we have never seen trustees take such action. Another issue is the extension of closed-end mutual fund tenures, which has completely undermined the sector’s fundamental structure. The Capital Market Reform Taskforce has recommended several measures to improve the mutual fund sector. If these reforms are implemented, transparency and accountability will be ensured. At the same time, those involved in past irregularities must face serious consequences.”