Investigating the Legal Challenges of Portfolio ‎Management Companies in Iran

What is introduced in Iran as a portfolio management company is known in other countries with different titles such as asset management companies, portfolio management, capital management and wealth management, which is equivalent to asset management from other terms, with the content of portfolio management that is popular in our capital market. The customers of portfolio management companies are divided into two categories: real customers and institutional customers. Real customers or ordinary people, which means households or rich people, but institutional customers also include insurance companies, pension funds, banks, etc. The tools used by portfolio managers in the world are mainly dedicated accounts, investment funds with variable capital, investment funds with fixed capital, money market funds, exchange-traded funds, combined ETF funds, private equity funds, and finally hedge funds. Dedicated accounts are similar to these brokerage contracts in Iran, during which the broker buys and sells with the customer's money in a code specific to the customer. Little information is available about this sector because the contracts are private and there can be significant differences between customers. Portfolio companies generally do not invest their own money, but invest for clients. Therefore, the main income of portfolio management companies is not from investment income, but from portfolio management fees. In fact, the portfolio manager is a legal entity that forms a stock portfolio and buys or sells or holds securities for the investor, taking into account the investor's goal and level of risk-taking in order to make a profit for him. The legal basis for its establishment and management is after paragraph (33) of Article One of the Securities Market Law, the "Establishment and Activity of the Portfolio Management" instruction and the sample contract of the portfolio management company with the investor, which enumerates the terms, conditions and regulations for issuing licenses and activities of this financial institution. From the birth of portfolio management in the country until today, this financial institution has faced challenges with various elements such as the stock exchange organization, investors, brokers, Central Securities Depository, banks, information processing companies and etc. The purpose of this article is to examine the mentioned challenges, which was compiled in a descriptive-analytical way, using library resources and obtaining the opinions of managers and market participants. One of the problems that exist in the way of the activity of indirect investors is the time-consuming and difficult process of indirect investment through portfolio management companies compared to direct investment in this market. The competitive environment created by the brokerages has caused certain privileges to be considered for direct investors and mainly people prefer direct investment in this market to indirect investment. The dominance of the brokerage institution as well as the bank and the conflict of interest that exists between the activities of brokerages and the indirect investment of people in the capital market are among the most important problems and obstacles to the development of indirect investment. Another problem that stands in the way of the development of direct investment in the capital market is the governance perspective. Although indirect investment in the capital market is always supported in the talks, in practice, the tools and regulations governing the capital market, including the range of volatility and volume, have been based on a kind of short-term and unprofessional view of the capital market. Portfolio management companies do not have the possibility to receive credit directly from the bank for leveraged funds, and to receive credit, they are forced to receive credit through brokers. Also, investment funds are considered the most important tools of portfolio management companies. However, after receiving the license of the portfolio management companies to establish a fund, a long and difficult process must be completed. Meanwhile, in the big capital markets of the world, some asset management companies manage more than 2,000 funds. In addition, portfolio management companies do not have the possibility to announce the minimum possible profit forecast for their portfolios and funds. All these problems have caused weakness, exploitation and short-termism in the method of indirect investment, especially portfolio management. Solutions to solve problems are: amending the guidelines and rules related to the minimum capital and manpower of portfolio management companies, changing the attitude of investors from short-term to long-term by granting long-term licenses to portfolio managers, tax exemptions for the variable commission of portfolio managers, solving infrastructure problems related to core transactions and software in order to speed up the buying and selling process and transparency of transactions for investors, the need to accelerate the issuance of necessary licenses for the establishment of funds by portfolio managers, revision of the guidelines for the establishment and activity of portfolio managers, and considering things such as the possibility of freezing the investor's code, drafting and approving a comprehensive law on the prevention and management of conflict of interest in order to reduce the field of corruption and conflict of interest in this financial institution.