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Similar to the concept of the
Filipino tradition of Bayanihan which promotes
efficiency in getting tasks done through a collective
effort, a mutual fund is an investment company that
pools money from shareholders and
invests in a diversified portfolio of securities.
In the Philippine market, the concept of mutual funds is
not entirely new as history can be traced way back in
the early 1950's. The birth of Philippine mutual funds
was brought about by the growing popularity of off-shore
funds worldwide. In the absence of a governing law, the
companies were registered as finance companies. Some
capitalized on long-term investment programs which made
their investors commit to a fixed payment scheme (Php 50
per month for a period of 20 years). The initial amount
invested for the first year served as the commission,
thus, forcing investors to make successive payments
thereafter before they would be able to break-even, much
more so, realize a profit. Some of these companies
charged exorbitant sales charges of 8%. A fund even
charged a front-end load of 50%.
Simultaneous with the collapse of the stock market in
the late 1950s, Ka Doroy Valencia (very popular and
influential columnist at that time) openly criticized
the process by which mutual funds were being sold and
managed. Three of the four companies which were
operating at that time eventually closed shop. Only the
Filipinas Mutual Fund remained. It was later transformed
into a finance company and much later, into a
development company.
As a response to the fiasco of the first mutual funds,
the government enacted R.A. 2629, otherwise known as the
Investment Company Act. Patterned after the U.S. Law but
legislated as a reaction to the recent debacle, the ICA
contained stringent measures which hampered the
development of the industry in general.
Under the said law, Trinity Shares was the first company
to register in August 1969 and began selling its shares
publicly in October of the same year. In a span of 4
months, the company opened 11 branches, doubling its
sales each month and its value appreciated to as much as
27% in the 4th quarter. Mr. Arthur B. Sokolow, the prime
mover behind the fund, was able to convince Ka Doroy not
only to invest in the new fund, but also to sit as
director. Trinity's success led to the registration of
other funds, such as the Pacific and Malayan Funds owned
by Alfonso Yuchengco and Ting Roxas' Bancom.
While such companies continued to thrive, the equity
market remained thin. This was further aggravated by the
political instability brought about by the dawning
dictatorial regime, punctuated by the “1st quarter
storm”. Eventually, this led to capital flight and a 30%
dive by the Manila Stock Exchange. Given the heavy
dependence of industry to the latter, mutual funds, part
or all equity, thrive or die with the stock market. The
absence of other investment outlets limited the sense of
diversification of funds then. As a result, the
Securities and Exchange Commission totally banned the
sale of mutual funds in 1973.
This death blow to the mutual fund industry led Trinity
Shares, Malayan and Pacific Fund to stop operations. To
date, Pacific and Malayan remain dormant. Trinity Shares
was acquired by PDCP in 1979 and was eventually bought
by Philamlife in 1993.
Evidently, the failure of the mutual fund industry
decades ago can be attributed to the following factors:
1) lack of government regulation; 2) deteriorating
political and economic condition of the country; 3) the
absence of alternative investment vehicles; and 3) an
undeveloped equity market.
In the late 1980s, recognizing the increasing role of
mutual funds as a vital ingredient for the development
of Capital Markets, the Asian Development Bank, through
Jardines, initiated a study on mutual funds. In 1989,
the SEC, in its effort to revive the mutual fund
industry established a taskforce for to oversee the
formulation of the Implementing Rules and Regulations
(IRR) of the ICA . The resulting IRR was promulgated on
October 1989 and took effect 90 days later.
The IRR changed the existing provisions of the said law,
increasing paid-up capital from Php 500,000 to Php
50,000,000, adding a 24-month hold out, and increasing
required audits to four per annum. All of these
provisions were intended to protect the interests of the
investors and shareholders.
Under the new IRR, the Galleon Fund (again sponsored by
Mr. Arthur B. Sokolow) was the 1st company to register
and started selling its shares in Feb. 1, 1991 . A few
other investment companies followed suit, and the
numbers have increased ever since.
Within a few years from this new beginning, the
investment climate was not as rosy as the Asian
financial crisis took its toll on the budding industry.
However, the stability of the Philippine Mutual Fund
Industry has a much better chance at this time. The
level of professionalism is much higher. The necessary
controls and regulations exist. Consequently, this
period puts all the players to test, and it is with
utmost confidence that Philippine Mutual Funds will be
here to stay. |
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