Inside EDGE AMC’s Ambition To Democratize Economic Benefits of Capital Market In Bangladesh: An Interview with Future Startup

Inside EDGE AMC’s Ambition To Democratize Economic Benefits of Capital Market In Bangladesh

Founders of EDGE AMC Limited, And EDGE Research And Consulting Limited, Ali Imam, Asif Khan, and Khandakar Safwan Saad, share how they started EDGE AMC And EDGE Research And Consulting and their journey to entrepreneurship, their ambition to change the capital market investment management in Bangladesh and democratize benefits of capital market, how EDGE operates as a company, the state of its business today, challenges and the future plans, talk about stock market investment, years of sweats and bloods behind putting together EDGE, the entrepreneurial imperatives, discuss how they make decisions, challenges they have faced, and lessons they have learned from their journey so far and much more.

Please find the interview at: https://bit.ly/2VnuVs1

Future Startup

What is EDGE Asset Management?

Ali Imam

Our ambition is to democratize the economic benefits of the capital market In Bangladesh. There is a huge gap in demand and supply of financial services, especially when it comes to investment management services in capital market. The number of reliable and performance-driven organizations is slim. For instance, the state of mutual fund penetration is dismal in Bangladesh. A mutual fund is an investment tool for a large number of small investors. There are some good works done in the space, but it has a lot more to offer. The sector is ready for the next level of growth and development with some challenges. We think that the expertise and experience that we have, we would be able to play an important role in bringing meaningful changes to this sector.

We want to be the most trusted asset management company in Bangladesh. It is partly about performance but mostly about high-quality customer service, building and maintaining the trust of customers.

Capital market is a place of temptation and endless challenges. In many instances, many investment companies- brokers/ merchant banks and asset managers- put their own interest ahead of their clients’ interest. We are committed in that area. To us, our clients’ interest is our interest. We believe if we remain customer and quality focus, performance will come naturally.

Bangladesh is a fast-growing economy. We have a good number of companies that are likely to generate a good return for investors and the number is growing consistently. Managing the portfolio in the equity market and fixed income market can generate a good return for investors, and this return can be distributed to a large number of the population through a credible asset management company.

Asif Khan

The first thing that we want to do is giving these people an option to invest. Making investment decisions, as well as managing investment, are two major challenges for many people when it comes to investment. If we can give a credible option an average person can do his job and let us manage his investment.

We want to apply the best practices that we have learned from years working in this industry, implement new concepts and launch new products in the market and EDGE is a place from where we will be doing it.

Capital market is a place of temptation and endless challenges. In many instances, many investment companies- brokers/ merchant banks and asset managers- put their own interest ahead of their clients’ interest. We are committed in that area. To us, our clients’ interest is our interest. We believe if we remain customer and quality focus, performance will come naturally.

Future Startup

What is your background?

Ali Imam

I studied Finance at the University of Dhaka and then later did CFA. We started working together in 2008. BRAC Bank just acquired EPL, which then became BRAC EPL. We first met there as colleagues. BRAC made a significant investment in it and to start with, they tried to put together a great team.

Our boss at that time, Mr. Aminul Haque, the best mentor we could have at that early stage of the career, put together a great team in 2009, and we have been working together since then in one form or other.

The research-driven approach that we maintain till these days, BRAC EPL Stock Brokerage was the beginning of it. Investment research was not a very recognized discipline in the capital market in general. Most of our research customers were foreign portfolio investors. Since Bangladesh market had not been covered very well, there was no high-quality research material available elsewhere- we positioned ourselves as a credible player in that space and resultantly, we had 70%-plus market share in executing international investments in the capital market of the country.

Looking back, I think we had a great audience. Our boss was ambitious. As a result, we got a fantastic learning opportunity there and took full advantage of it.

Asif Khan

I and Safwan are friends from grade 6 in school. After school and college, we studied together at North South University. I joined BRAC EPL towards the end of 2008 and Safwan joined there later.

Career-wise, I started my journey at BRAC EPL and then worked at a US-based hedge fund for four and a half years. After that, I returned to Bangladesh and joined BRAC EPL again. Ali bhai also left BRAC EPL for IFC during the time. He also returned to BRAC EPL after his stint at IFC and we reunited again. After that, I left BRAC EPL to join Exotix where I worked for two and a half years and then we started EDGE.

Safwan started his career at BRAC EPL and remained there his whole job life. So for him, the second job would be starting this business.

We were at BRAC EPL, all three, at two different times. We always wanted to do something of our own. But we did not know for sure what we wanted to do and how to do it. Starting something takes a lot of things – you need capital, team, right timing etc. Finally, 2017 was the year when we decided that this is it.

Ali Imam

At BRAC EPL, we mostly worked for foreign investors. Local institutions did not pay much attention to research-driven investment management at that time. After the crash in 2010-2011, we came to see that local institutions were losing heavily on their market exposure. Contrary to that, the foreign investors, who took a long-term and knowledge-driven investing approach at that time, were making more than a decent risk-adjusted return on their invested capital.

In 2013, when we reunited at BRAC EPL- I came back from IFC and Asif returned from Caravel, we did some exciting works at that time. By that time we worked in international organizations and learned a lot. So we were ready for it.

We covered bKash in 2013. bKash, a BRAC Bank subsidiary and a private limited company, was a small entity. People were not seeing it as an investment opportunity. We covered bKash, and valued it at $350M. bKash was just about 3-4 years old. We then shared the report with international investors. They knew about M-Pesa in Kenya, so it was easy to connect. Since it was a subsidiary of BRAC Bank, as a result of the report, many investors acted very aggressively on BRAC Bank. Our teamwork helped unlocking significant value in the BRAC Bank stock.

We later worked on Grameenphone, Olympic Industries among other companies. 2010-2013 was a challenging period for our capital market. In 2013 and afterward, our research along with the efforts from other organizations helped bring back high-quality investors to our capital market.

When foreign investors started investing in Bangladesh capital market, then we gradually began to come out of the bottom of that crash. Let me give you some numbers. In 2010, when the market was at its peak, foreign ownership was less than 1%, and by the end of 2016, the number was more than 10%. I think we, the sell-side research analysts, did something significant at that time.

The critical thing about capital market investment is the return on capital. Everyone who is working on capital market investment, be it a broker, an agent or an asset manager, every one of them is looking to maximize the return of their customers. They want to give their customers a satisfactory return on their investment. And you can ensure an excellent return for your customers, by perfectly aligning interests, through asset management services. That’s why we have taken this initiative.

Future Startup

When did you first think about starting an Asset Management Company? How did you come up with the idea of EDGE?

Asif

Ali Bhai joined BRAC EPL in 2009 and he has been thinking about asset management since then. I could remember that he had this idea in 2009 but in order to manifest it you needed a license and other resources which were not there at that time. He had this plan in 2011 and 2012, but then and again, this is a business that you can’t start at will. So Ali bhai had this plan for a long time, but it did not happen for various reasons until 2017 when we finally decided to go for it.

Ali

The main thing is that the long-term investment management that we are talking about is more important for local people than the international investors. We realized that there is an opportunity to serve a large number of people who do not have any plan or understanding of investment. It is like showing people iPad which they don’t know about, and then only people realize that they need it.

The critical thing about capital market investment is the return on capital. Everyone who is working on capital market investment, be it a broker, an agent or an asset manager, every one of them is looking to maximize the return of their customers. They want to give their customers a satisfactory return on their investment. And you can ensure an excellent return for your customers, by perfectly aligning interests, through asset management services. That’s why we have taken this initiative.

Future Startup

What went into building the initial operation?

Ali

We had the first serious discussion about starting an asset management company in 2012 when I went out to IFC and Asif left EPL for Caravel Management LLC. We were much younger. We had the ambition but did not have all the critical resources to get started. One being capital. You can’t start an asset management company without a certain amount of paid-up capital – it is a regulatory requirement. We did not have the track record and network that we have today. These were some of the reasons we could not start at that time. But in 2012, we took a call that we would do something. Between 2012 and 2016, we focused on gathering these critical resources – capital, network and building a track record.

Finally, in 2016 we decided that now we could start with what we have. By the time, we executed some excellent research projects of international standard. We have built a network in the industry. We have worked in some renowned organizations. We have built a reasonable profile for ourselves. And we have built access to some global institutions.

BRAC Bank was EPL’s internal client when we were working at BRAC EPL. We had the opportunity to play the advisory role for BRAC Bank’s capital market investments. We managed that fund till 2017 and it was a pretty big fund. We realized that we have almost everything that we needed to get started. We made a plan and started working on it.

You take a philosophical stand when you are making an investment. If someone with a different philosophical perspective joins us, that will lead to some potential challenges in the future in terms of mutual understanding.

Future Startup

You made this plan in 2016 and then went on to register the company? What happened next?

Ali

We made the plan in 2016. But we still had some capital requirement that we could not manage. We were three mid-career professionals, we did not have all the capital required for the business. Then we started speaking with some like-minded financial sector investors. Like-minded because there is a philosophical aspect to capital market investment. You take a philosophical stand when you are making an investment. If someone with a different philosophical perspective joins us, that will lead to some potential challenges in the future in terms of mutual understanding.

At one point in the discussion, we came to realize that we have people in our families who could be part of our journey. That’s how Asif’s uncle Mr. Masud Khan became part of our journey. They are well-known and well-respected in their professions. We thought that this was the best solution where our family members would come as financial resource provider and that it would give us the independence that we need to run an early-stage financial institution.

Future Startup

You were three people at that time. You managed finance, went on to complete your legal procedures, and then what happened?

Asif

If you look at the timeline, we completed the company registration process in about July 2017. Asset Management License has some major regulatory requirements. You have to have a certain amount of paid-up capital, take office space, audit your company and so on. After completing all this work, we finally applied for the license in August 2017.

By that time, Ali bhai left his job and started full time here. I joined full time in September. I already left Exotix at that time, but I had a consulting agreement with them. Safwan joined us a few months later because we did not have a license yet.

In February 2018, we got an asset management license. And we launched our first mutual fund in August 2018.

Founders of EDGE AMC Limited, And EDGE Research And Consulting Limited, Ali Imam, Khandakar Safwan Saad, and Asif Khan (from left to right) | Photo by EDGE

Founders of EDGE AMC Limited, And EDGE Research And Consulting Limited, Ali Imam, Khandakar Safwan Saad, and Asif Khan (from left to right) | Photo by EDGE

Future Startup

So it has been about a month you launched your first fund, could you give us an overview of EDGE in terms of services, team, and operations now?

Asif

We have two companies – asset management, and research and consulting. On the research side, I lead the team. Most of my time goes there. I have a team of two analysts. Both of them are fresh graduates. They started here as interns and subsequently got jobs. We have been deliberate about hiring. We selected them through a process outside of mere recruitment exams and all. So we are three people in research. We conduct research on good companies in the stock exchange. We offer a subscription service where our foreign clients pay us an annual subscription fee to access our research reports. It has been growing consistently. We have now 11 international clients. We are happy with the growth.

Our asset management operation is the other part of the company. Ali bhai is the CEO of our asset management business, and Safwan is the portfolio manager. We have two other people in the asset management business. One is our Chief Operating Officer and the other is an Investment Analyst.

We have deliberately kept the team very lean. No point in adding to costs at the beginning.

Ali

One question that comes up is: why two companies and how are we thinking about the business? You could categorize our capital market investors into three broad groups: foreign investors, local institutions and local individual investors. Each of them has different needs. The requirements are different for each of them. That’s why we have created two separate companies.

One company is dedicated to serving foreign investors, which is EDGE Research and Consulting. Our research subscription is our service for our foreign investors.

For local institutions, we have separately managed account services and for individuals, we have launched a mutual fund. We started the mutual fund with AUM of 10 crores and that has not grown above 20 crores.

Future Startup

You have 11 customers in research. How have you attracted customers?

Asif

The advantage we have since we had a long career in research, is that we know almost all the international investors who invest in our capital market. To make our research business work, we needed a few things. First, start doing the research. If I don’t have a product, I can’t sell. Initially, maintaining the quality of the research has also been a priority for us.

As we grew our coverage, we started contacting potential clients that we already knew from our previous engagements. We already had access to many of them. It was relatively easy given that people already knew us. Some of them accepted our service right away while others said let us see your work, trial it and then come back to you afterward.

Future Startup

What about your asset management business?

Ali

The key indicator of the growth of an asset management company is the asset under management. We have about 30-35 crore taka under management (includes both the mutual fund and separately managed accounts). This is just the beginning. What happens in the case of asset management companies is that it always starts from a small base and then gradually grows as you build trust and track record in the market. We have grown quite fast in terms of our research business, but for asset management, that to happen, we have to work hard for a few more years.

One substantial advantage for us is that we are a management-owned company. As a result, we have the orientation and commitment for building the business for the long run. This is unique if you look at our capital market investment scenario. Few companies are management owned.

The distinction between a management-owned company versus an employee-run company is in the degree of the skin in the game. I will always think about my customer because otherwise, my entity will suffer and if my entity suffers, I will suffer as well. But if I were only an employee here, and my skin in the game was not as much, I would not bother much even if something lacks in terms of service because I would get paid regardless. So we have a significant structural advantage as a management-owned entity.

We are relatively young in age. So we think we have time to think long term. We are patient-we want to build our business in the right direction over the long run.

Future Startup

Your mutual fund is just a month old, how has been the response so far?

Ali

Overall, I would say that it has been a relatively smooth journey for us. Our industry experience and network have helped, of course. Since we approached our dealing in every area from an orientation of service, how we can serve our clients better, we received a positive response from almost every area.

We are always trying to go the extra mile for our clients. For example, we are giving free life insurance and health insurance coverage to our clients of this fund. Our mandate to our clients is to manage their asset for them and give them a good return. But we are doing all these extra things for them. We are not thinking of ourselves as an asset management company, we are thinking of ourselves as a wealth management company. If we can meet the financial goals of our clients, growth in our business would come automatically. But we don’t want to limit ourselves just there. We are always thinking of how better we can serve our clients. Give them a better return. Work in some sort of an advisory role where we could help them in making better financial decisions.

The other thing is research and consulting. Personally and as a team, we are interested in the business scene in Bangladesh. We think there will be a wave of next-generation companies coming up in big ways in the next five to ten years. We believe there is going to be a radical development in VC and PE scene. We think that there is scope of doing good work in these areas as consultants, financial analysts and we are keen to explore these areas.

At some point, we want to play an active role in VC and PE industry as a fund manager. We would need a separate license for that and it has a capital need as well. In the meantime, we are advising some startup companies on their financial planning and capital issuance.

The key indicator of the growth of an asset management company is the asset under management. We have about 30-35 crore taka under management (includes both the mutual fund and separately managed accounts). This is just the beginning. What happens in the case of asset management companies is that it always starts from a small base and then gradually grows as you build trust and track record in the market. We have grown quite fast in terms of our research business, but for asset management, that to happen, we have to work hard for a few more years.

Future Startup

You have these different target customers, institutions and individuals, for your asset management company. What are the things you’re doing in terms of marketing and communication? How do you reach out to your customers? What are the plans going forward?

Ali

Broadly, we have two groups of customers, institutions, and individuals. For institutions, we have worked in the industry for many years, and we have built some access and have a network. We have a network in NBFI and banks. We are hitting those points first.

For individuals, initially, we are trying to develop business in our family and friends circle. At the same time, as you probably have seen, we have partnered with Tonic (Telenor Health). We are trying to leverage these collaborations to get into the bigger market segment. We are also working with two excellent institutions in the space, UCB Capital, and BRAC EPL Stock Brokerage, who are helping us with the distribution.

We are investing in digital media. We are using FB and other digital platforms to reach to the right market segment.

One thing I would like to mention is that: since we want to build a knowledge-based company, we want to onboard people who are thought leaders working in different sectors in Bangladesh. We don’t necessarily believe that this would give us a big business, but we think it will provide us with a learning opportunity.

In short, we are trying to capitalize our existing network. We are using digital channels to reach out to the right audience, and finally, we are building the right kind of partnerships.

Asif

Initially, since this is a business of money, it demands a high degree of trust. And the word of mouth works the best in terms of building that trust factor. When someone who knows me refer our product to their friends and family, that’s works very effectively. If someone sees our product, he or she might check it out but trust, until our awareness grows to a certain stage, mostly depends on reference and recommendation.

As we mentioned, initially, our customers are friends and family. If we serve them well and they find our service satisfactory, they would tell their friends and family, and a virtuous cycle would begin.

Investing is such a thing that everyone would need it. The beauty of mutual fund is that the minimum size of the investment is small, close to five thousand taka only, which is very small that many Bangladeshi could afford. If we could build that trust factor, possibilities are endless.

Ali

From the beginning, we wanted to offer the right products. Now the right product is different for different people. One product that we wanted to offer is a fixed income mutual fund. It is bizarre that we don’t have any fixed income fund in Bangladesh. Regionally, we are the only country where there is equity fund but there’s no fixed income fund.

Let me explain it to you why fixed income fund is so important. If we want to grow our fund to a significant level, we would need to onboard people from all walks of life. Now, if I go to a rickshaw puller, he would ask me, if I give you 100 taka, how much return I would get after a year? Now, you can’t provide an objective answer to this question by managing equity fund where the future is not certain. If this was a fixed income fund, we could have answered him with a certain degree of certainty. We think that the right product for our market would be fixed income fund. But the regulatory environment for mutual fund does not offer much room for a fixed income fund yet. I believe that policymakers and regulators are actively looking into this matter.

We wanted to start with a fixed income fund because this is a necessary product for Bangladesh market. Due to the NPL problem in the banking sector, bank deposits probably are not suitable for everybody. There are banks with pretty high risk due to NPL. But regular people can’t assess this risk, and they go to banks that offer the best interest rate. But the bank that is offering higher interest rate is riskier as well. But it is hard to understand for a regular investor. Probably he or she does not have the risk profile that is required for investing in that bank. In that scenario, there are a lot of scopes for an asset management company to add value.

The second thing is, if you invest 10 lakh taka in a bank in a fixed deposit product, you will get an interest rate and if you invest 10 crore taka, you will get a significantly higher rate that could change the final return to a great degree. So if we could have a fixed income fund, take investment from a large number of small investors and invest that collective investment into a fixed deposit product, it could have brought a higher return for all the small investors than otherwise available if they invest individually. That’s why we thought that fixed-income fund would have done better. Unfortunately, we could not offer it now due to regulatory limitations. But we are very keen, and whenever there is a regulatory framework for a fixed income fund, we will go for it.

Investing is such a thing that everyone would need it. The beauty of mutual fund is that the minimum size of the investment is small, close to five thousand taka only, which is very small that many Bangladeshi could afford. If we could build that trust factor, possibilities are endless.

Future Startup

What are the biggest challenges you have faced?

Asif

When you are new to the world of entrepreneurship, it is a very different world than any world you experienced before. Everything is new. And you get to put a lot of different hats at once and do a lot of different things starting from regulatory stuff to operation to business development to managing people and so on.

The other thing is that you don’t want to increase your cost dramatically. This means that you need to take a lot of pressure on yourself and do more with limited resources. It happened to us that each of us did work of many people. This was and is a challenge – finding the balance. For people who have gone through an entrepreneurial journey before, it is a common thing but for us, it was a new experience, and we had to learn it by doing.

For research, we have come to a place where we have a small team and a handful of clients. We will continue to grow if we deliver good researches to our subscribers.

On the asset management side, the ongoing challenge for us would be gaining the trust of people. For people who already know us, it is easy for them to trust us. But the market we are targeting is big, and most of the people don’t identify with us and are not our clients. The challenge is to convince that group.

Safwan

Dealing with regulatory issues was a challenge in the early days. We have overcome that challenge. Managing operation was a challenge. Since we did not have any prior experience in operation, we made a lot of mistakes. And we are still learning.

Ali

Working with our local corporate clients and getting a decision from them, be it yes or no, is time-consuming. That’s one challenge, particularly on the side of the B2B business. The decision cycle is unusually long and at times, they don’t respond even after jointly working on a project.

The most critical challenge, which we have and we think we will also have in the coming days, is policy related. There are a lot of policy-related issues that need to be addressed. There should be more awareness and literacy programs around financial planning and investment in general.

On the supply side, we don’t have that many companies in the capital market that are of high quality. If you look at the corporate governance, management and performance, the number is very slim. We now have about 20 companies maximum in the capital market that you can call of high quality whereas for a country like Bangladesh the number should be at least 50 companies.

We are managing investment for our customers, meaning we are giving our customers disciplined exposure to these companies and investment opportunities. If this universe of companies were big, we could have delivered better performance to our clients. Since the universe is narrow, it limits our opportunity. We think it is a challenge, the development of our capital market both at the policy level and at the product level, how it is evolving remains an obstacle for us.

Future Startup

What are the goals for EDGE for 2018 and 2019?

Ali

Our goal is democratizing the outcome of the capital market, which means we want to take our product to the individual investors and to as many people as possible. We want to reach a much bigger audience by the end of next year.

We want to double the asset under management for the mutual fund that we have launched. At present, asset under management at our mutual fund is at around 23 crore taka, and we want to take it to 50 crores plus by the end of 2019.

Regarding performance, we want to outperform the market by a significant margin and give a satisfactory return to our customers. I think we have a good strategy in place to ensure that our clients are getting at least 10-12 percent return per annum, if not more, over the next two years. On the research side we have some ambitious goals, Asif would shed some lights on that.

We want to take advantage of digital technologies. As a financial sector startup, we want to make the life of our clients easier by ensuring that they could access our services digitally.

Our vision is to have a fixed income fund in the next two years which can be subscribed over the counter from anywhere in the country. If you are a rickshaw puller in Dinajpur and have a 100 take savings, you could put that money into our fund without big fees over the counter. And the fund would give him a good return every year. I think there is a large market for this kind of product. Technology is changing many industries. Taxi to real estate to every legacy industries are being disrupted. We see a big opportunity there and have plans to explore those opportunities in the coming years.

Asif

For research, we are covering about 12 companies in the stock market. Our target is to take this number to 18 companies by next year. We want to grow the client base and make it to 20 international clients. We will try to maintain the quality while increasing the quantity of research.

On the Asset management side, growing the business is a priority. Apart from that, we want to give our customers a seamless experience starting from subscribing to the fund to getting their money back. This entire experience needs to be as smooth as possible. We have already started working on it and have plans to improve it as we go.

The other thing is we want to build a knowledge-based company. We want to create a culture of learning and will facilitate the learning and development of our people as much as possible.

We don’t have that many companies in the capital market that are of high quality. If you look at the corporate governance, management and performance, the number is very slim. We now have about 20 companies maximum in the capital market that you can call of high quality whereas for a country like Bangladesh the number should be at least 50 companies. We are managing investment for our customers, meaning we are giving our customers disciplined exposure to these companies and investment opportunities. If this universe of companies were big, we could have delivered better performance to our clients.

Note: This interview was conducted in November 2018

Cover photo: Founders of EDGE AMC Limited, And EDGE Research And Consulting Limited, Asif Khan, Khandakar Safwan Saad and Ali Imam (from left to right) | Photo by EDGE

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