The Securities and Exchange Commission of Pakistan (SECP) has registered seven new private funds under the Private Funds Regulations during the calendar year 2022.
Given that the Private Funds (PF) industry for the past many years had only five funds, the registration of two Venture Capital (VC) funds, four Private Equity and Venture Capital (PE&VC) funds and the country’s first alternative fund is a significant development.
Incentivized by the consistent reform measures, a sharp growth has been witnessed during the past three years in the number of private fund management companies (PFMCs) from four to ten, leading to an increase in the number of players in the SECP-regulated PF industry.
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The new funds, worth approximately Rs. 13.6 billion are expected to be launched within the financial year ending June 30, 2023. Following the launch of these funds, the cumulative asset size of the PF sector is expected to increase to Rs. 25.8 billion, from Rs. 12.287 billion as on September 30, 2022, indicating a growth of 110 percent.
The SECP conducted a ‘Diagnostic Review of Pakistan’s Private Funds Industry’ and recommended measures to revitalize the sector. The Federal Board of Revenue (FBR) on the recommendation of SECP exempted the income of PE&VC funds from tax. In addition, the SBP has issued a clarification regarding its Prudential Regulations for Corporate/Commercial Banking for explicitly allowing banks to participate in PF units.
The SECP has also allowed insurance unit-linked funds and equity sub-funds of pension funds to invest up to 5 percent of net assets in PF units. The implementation of several key recommendations of diagnostic study has led to record growth in new PF registrations and is expected to direct private capital to the sector.
The PF industry has the potential to contribute significantly to energizing economic activity by providing non-traditional funding sources and managerial expertise to start-ups, SMEs, and financially troubled listed entities, generating jobs and increasing government revenues. The SECP is actively working to implement the remaining diagnostic review recommendations to further rejuvenate the PF industry in Pakistan.
