Mutual fund seeks to delay exit till equities recoup losses triggered by pandemic

A mutual fund, which invests primarily in the shares listed on the Colombo Stock Exchange (CSE), has sought the consent of the unit holders to delay the exit date of the fund, as the pandemic erased much of the value of the stocks, impacting the net asset value of the fund. 

Candor Opportunities Fund, a five-year closed-ended fund, is seeking the opinion of its unit holders to delay the fund’s exit date, which is due on November 19, 2020, by an year, as the fund management company believes stocks would recover some of their losses with improved operations 
and financial performance during the latter part of next year. 

In a letter sent to the unit holders on June 22, Candor Asset Management (Pvt.) Limited had sought the consent of the unit holders on the option to exit the fund in November 2021, instead of November 2020. 

“An extension will provide the management company the space and flexibility to avoid extremely unsatisfactory market conditions when liquidating the investments,” Candor Asset Management said.  

The company has also sought the approval of the Securities and Exchange Commission (SEC) and Hatton National Bank PLC (HNB), which functions as the Trustees to the fund. 
The SEC approval on the deferment sought by the company will be subject to the unit holders favouring the deferred exit date. The deadline for the unit holders to respond is set for July 24. 

The S&P 500 index and All Share Price Index of the CSE dropped 34 percent and 25 percent, respectively, in the three months ended on March 31, 2020, as investors took flight to safe haven assets in government securities while some accumulated cash, as they were assessing the scale of the pandemic and its impact on the businesses. 

The net asset value of the fund also declined by 26 percent during this period, Candor Asset Management said. “Since, closed-ended unit trust funds have a specified termination date, the liquidation process of the fund may begin well in advance of the date of liquidation, taking into consideration multiple factors such as liquidity of securities in the secondary markets, market impact as a result of selling of securities and prevailing equity and fixed income market conditions,” Candor Asset Management said in a letter sent to the CSE. 

“However, the fund management company believes that by mid-202l, the listed companies would have adjusted to the new operating environment and some of their new business strategies would reflect same. 

Moreover, we feel that by the latter part of 2021, the listed companies would see some recovery in their financial and operating performances. This in turn would be reflected in better valuations for listed companies in the year 2021, enabling the fund to regain some of the value that was lost, as a result of the steep fall in share prices in the first quarter of 2020, due to the COVID-19 pandemic,” the letter further read.