Sunday, May 03, 2009
Gulf News Dubai: When the Prime Reserve Fund in the United States fell below its par value due to Lehman Brothers' collapse last September, the world's fund industry broke into a cold sweat.
It was after all a money market fund, which by definition is expected to be stable and almost never falls below its par value.
While news of the Prime Reserve Fund made headlines for days and turned out to be symptomatic of the crisis befalling the global economy, here in the region, we have had our own money market drama, with far less coverage.
Zawya data shows that three Kuwaiti money market funds have seen a sudden drop in their net asset values (NAV), suggesting something is amiss in the generally quiet world of money market funds.
Kuwait Investment Company's Al Hilal Islamic Fund and KIC Bond Fund and Gulf Investment Corporation's GIC Kuwaiti Dinar Bond Fund have fallen dramatically over the past few months.
Al Hilal Islamic Fund fell from its peak of 1.3819 Kuwaiti dinars on March 30 to 0.9814 dinar a day later. KIC Bond Fund fell from its peak of 1.3310 dinars to 1.0388 dinars within a month in March and GIC Bond Fund's NAV dropped off a cliff from 1.137 dinars to 0.8836 dinar within a few days last Dec-ember.
"There were three different positions we had exposure to: Investment Dar, Global Investment House and international leasing - and all of those have defaulted one way or another," Abdul Rahman Mohammad, business development manager at Gulf Investment Corporation, told Zawya.com.
"Some of the securities were supposed to mature in December and January, and there was some activity to provision these investments, but it did not quite work to our liking, so we had to scrap them off the books altogether, which led to the decline in NAV."
The picture is still not clear and the fund is waiting for clarification from the erring companies, says Mohammad, adding that exposure to Global Investment House alone was around 3 million dinars.
While the fund is operational, the managers have suspended subscriptions to the fund and are looking at a few options to include new subscribers in other ways.
Mohammad says there have been no redemptions from the fund, adding investors will suffer heavy losses if they exit at such low NAVs. "The fund manager has visited the key subscribers to the fund and explained the situation. We don't expect any more haemorrhaging from the existing assets," says Mohammad.
Kuwait Investment Company could not be reached for comment.
It is no coincidence that Kuwaiti funds have been hit, since the country's financial industry is in a tailspin.
The much-anticipated $13.8 billion Kuwait stimulus package is expected to ease pressure on companies and help meet their obligations, but the trouble in money market funds is another indication that the Gulf's financial sector remains mired in a host of problems.
By Yadullah Ijtehadi
- The writer is managing editor of Zawya.com.
© Gulf News 2009. All rights reserved.
Gulf News Dubai: When the Prime Reserve Fund in the United States fell below its par value due to Lehman Brothers' collapse last September, the world's fund industry broke into a cold sweat.
It was after all a money market fund, which by definition is expected to be stable and almost never falls below its par value.
While news of the Prime Reserve Fund made headlines for days and turned out to be symptomatic of the crisis befalling the global economy, here in the region, we have had our own money market drama, with far less coverage.
Zawya data shows that three Kuwaiti money market funds have seen a sudden drop in their net asset values (NAV), suggesting something is amiss in the generally quiet world of money market funds.
Kuwait Investment Company's Al Hilal Islamic Fund and KIC Bond Fund and Gulf Investment Corporation's GIC Kuwaiti Dinar Bond Fund have fallen dramatically over the past few months.
Al Hilal Islamic Fund fell from its peak of 1.3819 Kuwaiti dinars on March 30 to 0.9814 dinar a day later. KIC Bond Fund fell from its peak of 1.3310 dinars to 1.0388 dinars within a month in March and GIC Bond Fund's NAV dropped off a cliff from 1.137 dinars to 0.8836 dinar within a few days last Dec-ember.
"There were three different positions we had exposure to: Investment Dar, Global Investment House and international leasing - and all of those have defaulted one way or another," Abdul Rahman Mohammad, business development manager at Gulf Investment Corporation, told Zawya.com.
"Some of the securities were supposed to mature in December and January, and there was some activity to provision these investments, but it did not quite work to our liking, so we had to scrap them off the books altogether, which led to the decline in NAV."
The picture is still not clear and the fund is waiting for clarification from the erring companies, says Mohammad, adding that exposure to Global Investment House alone was around 3 million dinars.
While the fund is operational, the managers have suspended subscriptions to the fund and are looking at a few options to include new subscribers in other ways.
Mohammad says there have been no redemptions from the fund, adding investors will suffer heavy losses if they exit at such low NAVs. "The fund manager has visited the key subscribers to the fund and explained the situation. We don't expect any more haemorrhaging from the existing assets," says Mohammad.
Kuwait Investment Company could not be reached for comment.
It is no coincidence that Kuwaiti funds have been hit, since the country's financial industry is in a tailspin.
The much-anticipated $13.8 billion Kuwait stimulus package is expected to ease pressure on companies and help meet their obligations, but the trouble in money market funds is another indication that the Gulf's financial sector remains mired in a host of problems.
By Yadullah Ijtehadi
- The writer is managing editor of Zawya.com.
© Gulf News 2009. All rights reserved.
