The start of EDGE Bangladesh mutual fund and our research services

In my last post written yesterday, I discussed about the decision to quit my job to start two companies. Now I will discuss the two businesses that we have started, EDGE AMC Limited and EDGE Research & Consulting Limited. We decided on the name EDGE as it is a synonym for competitive advantage and we certainly believe that we had a few such advantages. But it also suggests being at the forefront of something (pushing boundaries and trying new things). More importantly, it was the only name all of us could agree upon.

EDGE AMC LIMITED

We always planned of starting an Asset Management Company. Our long experience in capital markets and academic knowledge made us suited for such a business. The size of the Asset Management industry in Bangladesh is also extremely small which we believed had to increase at some point.

Although, many industries stay small now and may stay small in the future, it is often the lack of credible operators that cause this. We certainly hoped that was the case for asset management. Every single person in Bangladesh needs investment management services and thus the potential market size is huge. How one can reach this vast untapped client base is a different question and needs to be addressed in a different post.

“An Asset Management Company is a licensed and regulated provider of investment management services. The regulator for them is the Bangladesh Securities and Exchange Commission (SEC). The Asset Manager is allowed to take money from retail and institutional investors in Mutual Funds and invest on their clients behalf. The clients will bear profits and losses. The Asset Manager takes a management fee on the amount managed. The presence of a regulator makes the structure safer than some other alternatives. Also the assets are held with a ‘custodian’ for safekeeping while a ‘trustee’ ensures that the manager acts in the best interest of the investors. Finally, there is an audit annually by an auditor registered with the SEC.” 

Our company EDGE AMC Limited started its journey as a registered asset manager in February 2018. We launched our first mutual fund EDGE Bangladesh Mutual Fund (EDGEBDMF) with a size of BDT100mn in August 2018. BRAC Bank was chosen as the Custodian and Sandhani Life Insurance as the Trustee. ACNABIN was the Auditor. EDGE AMC sponsored the fund by providing BDT10mn (10% of the fund size) while the rest 90mn was collected from institutions and individuals.

Almost 7 months have passed since the inception of this fund. We have generated a time weighted return of almost 12% in this period, outperforming the market index by almost 6%. The asset under management has also increased to BDT 300mn. Building an asset management business requires investor trust. Trust takes time to build, specially for a new brand. EDGE will work hard to build that trust, one customer at a time.

EDGE Research & Consulting Limited

While applying for the asset management license we realized that by focusing on asset management only we are missing out on a big opportunity. Selling investment research to international asset managers. We have been equity analysts for long and built a reputation. However we did not know if clients are willing to pay for research as it had always come free with brokerage services. We decided to give this business a shot also mainly because there was a genuine need for high quality investment research and because the cost of failure is low (you don’t need a lot of financial capital to do this business). Thus the birth of EDGE Research & Consulting Limited which was created to do investment research, consulting and advisory.

EDGE AMC Limited and EDGE Research & Consulting Ltd had a conflict of interest. We decided to mitigate or reduce this conflict in a some ways to give comfort to clients.

a. First, it was decided that management has to be separate between the two companies. I will manage EDGE Research while Ali bhai (aka Ali Imam) and Safwan will manage EDGE AMC Limited.

b. Secondly, we were very transparent to our research clients about this conflict. They could choose to work with us or not after knowing about the conflict.

c. We decided to use one website for both the businesses. Even my email address has an EDGE AMC domain.

Over time, EDGE Research managed to bag enough clients to become a self sustaining business. We had also hired two analysts who work with me to cater to client needs. Therefore, it became the first (at least to my knowledge) ‘independent equity research’ provider in Bangladesh that works with foreign clients.

The creation of EDGE Research led to an interesting situation. With it, we could cater to international clients. For Bangladeshi clients (both individual and institutional) we had EDGE AMC’s investment management services. There is something for everyone ;).