HBL Growth Fund (HGFA): the closed-end fund Pakistan used to know as PICIC Growth Fund

KARACHI: Every other profile in this series describes a company — a mill, a bank, a factory, a brand. HGFA describes something else: a pool of other companies' shares, wrapped in a trust, managed by a bank's asset-management arm, and traded on the Pakistan Stock Exchange in a class of units that behaves like the closed-end funds Pakistan used to have. HBL Growth Fund began life as PICIC Growth Fund, a closed-end fund assembled in 2004 from the remnants of the state-run ICP mutual funds. In 2016 its manager was absorbed by HBL Asset Management; in 2018 the fund was converted into an open-end scheme — yet its listed units, HGFA, still trade on the exchange today, representing a special "frozen" slice of the old portfolio. If that sounds intricate, it is; but it is also a perfect guided tour of how Pakistan's mutual-fund industry grew up, so let us take it in order.

First, what a closed-end fund is

A mutual fund pools money from many investors and buys a portfolio of securities professionally. The structure comes in two classic forms. An open-end fund continuously issues new units to buyers and redeems units from sellers at a price based on the day's net asset value (NAV) — the value of the portfolio minus liabilities, divided by units in issue. The fund grows and shrinks with investor flows, and investors always transact with the fund itself, at NAV.

A closed-end fund works differently. It raises a fixed pool of capital once — historically through a public offering of certificates — and then closes: the number of certificates is fixed, the fund does not redeem them, and investors who want in or out trade with each other on the stock exchange, exactly as with a share. The manager is freed from daily inflows and outflows and can manage the portfolio for the long term. But because the exchange price is set by supply and demand for the certificates — not by the portfolio — it routinely drifts away from NAV. When the price sits below NAV, the fund trades at a discount; when above, at a premium. Discounts are the norm worldwide, and they arise for understandable reasons: investors cannot force redemption at NAV, so they demand a margin for that locked-in quality; fees will be charged against the portfolio in future; the underlying holdings may themselves be illiquid; and sentiment toward the manager and the market colours the price. Our guide to mutual fund types in Pakistan sets closed-end funds alongside open-end funds, money-market funds and pension schemes in the full landscape.

From ICP to PICIC: the fund's ancestry

Pakistan's mutual-fund industry began in the public sector, with the Investment Corporation of Pakistan (ICP) running a family of mutual funds for small investors for decades — for many households, ICP certificates were a first encounter with the stock market. When the government privatised pieces of that legacy, the management rights of one ICP vehicle, the ICP State Enterprise Mutual Fund, were acquired in 2003 by the Pakistan Industrial Credit and Investment Corporation (PICIC) — one of the country's oldest development-finance institutions — through the Privatisation Commission. PICIC consolidated that inheritance into a single closed-end fund, constituted under a trust deed dated 20 July 2004: the PICIC Growth Fund. Management rights were in due course transferred to PICIC's wholly owned subsidiary, PICIC Asset Management Company.

Both ancestors deserve a line of their own, since HGFA's DNA comes from each. The ICP was established in February 1966 by federal ordinance — created, on the advice of the Harvard securities scholar Louis Loss, whom the government had engaged to diagnose the capital market's shallowness — with the twin objectives of broadening the base of investment and developing the capital market. Among its chosen instruments, alongside underwriting new share issues and running investment accounts for individuals, was floating closed-end mutual funds: the ICP is credited with introducing the closed-end fund to Pakistan, giving small savers a pooled, professionally managed vehicle decades before the modern industry existed. PICIC, for its part, was among the country's first development-finance institutions, established in 1957 with World Bank Group assistance to channel long-term credit into Pakistani industry. The 2004 fund was thus a marriage of the state's two oldest financial technologies — the DFI's balance sheet and the ICP's small-investor funds — and its frozen energy portfolio, a relic of the era when state institutions held strategic shareholdings as a matter of policy, came with the marriage.

One detail of the inheritance would shape everything that followed. Part of the fund's portfolio consisted of shares in two great state-linked energy companies — Pakistan State Oil (PSO) and Sui Northern Gas Pipelines (SNGPL) — held under arrangements with the government, through the Privatisation Commission, that restricted their disposal. Fund documents call this the frozen portfolio: assets the manager held but could not freely sell. Remember it; the entire modern structure of HGFA is the eventual solution to that frozen block.

The HBL Asset Management takeover

PICIC's own corporate story ended in absorption by the Habib Bank group — HBL acquired and merged PICIC's banking operations in the late 2000s — and the asset-management tail followed later. By an order of the Securities and Exchange Commission of Pakistan dated 31 August 2016, PICIC Asset Management Company was merged into HBL Asset Management Limited, the asset-management subsidiary of Habib Bank (HBL), which became the legal successor manager of the PICIC funds. The funds investors knew as PICIC vehicles were thus rebranded into the HBL family — PICIC Growth Fund in due course becoming HBL Growth Fund — while their portfolios, trustees and certificate holders carried over. Takeovers of this kind are a recurring feature of fund industries: the assets belong to the unit holders under trust, the manager is replaceable, and a merger of managers changes the nameplate and the fee recipient, not the ownership of the portfolio.

2018: conversion — and the two classes of units

Pakistani regulation had meanwhile turned against the closed-end form. Regulation 65 of the Non-Banking Finance Companies and Notified Entities Regulations, 2008 required all closed-end funds to convert into open-end schemes once a five-year period from November 2007 had run — the policy judgement being that investors should be able to exit at NAV rather than at whatever discount the exchange offered. Most funds converted or wound up. PICIC Growth Fund and its sister PICIC Investment Fund could not convert cleanly, precisely because of the frozen PSO and SNGPL portfolio: an open-end fund must be able to sell assets to meet redemptions, and the frozen block could not be sold.

The solution, approved by the SECP, agreed with stakeholders including the exchange and the central depository, and passed by certificate holders at a meeting on 10 January 2018, took effect on 2 July 2018. The fund became the open-end HBL Growth Fund — but each old certificate was exchanged for two classes of units:

• Class A units, issued against the value of the frozen portfolio and its related assets and liabilities. Class A units remain listed on the Pakistan Stock Exchange and trade between investors exactly as closed-end certificates did — under the symbol HGFA. They are the exit route for the frozen slice: holders who want out sell on the exchange, because the fund cannot redeem against assets it cannot sell.
• Class B units, issued against the NAV of everything else — the ordinary, unfrozen portfolio. These are the true open-end units, bought and redeemed at NAV through the manager in the usual way, and are not what the HGFA ticker represents.

This is why the PSX still classifies HGFA among close-end mutual funds and why this profile's title calls it a closed-end fund: economically, the listed instrument behaves as one. Its price is set by the market, it can and does stand away from the value of the assets behind it, and the assets behind it are notably concentrated — the frozen portfolio was built around large holdings of PSO and SNGPL shares. A buyer of HGFA is therefore not buying a diversified slice of the whole Pakistani market in the way a broad open-end equity fund provides; they are buying a tradable claim whose fate is tied closely to two energy companies' shares and to whatever discount or premium the market applies on the day. That is not a criticism — it is simply what the instrument is, and the fund's own documents are transparent about it.

Who runs it, who watches it, how it earns

Three parties structure every Pakistani mutual fund, and HGFA shows the pattern clearly. The management company, HBL Asset Management, makes investment decisions and earns a management fee calculated on the fund's assets — the manager's business is fees, and it runs many other open-end funds and pension schemes beside this one. An independent trustee — for this fund, the Central Depository Company of Pakistan — holds the assets on behalf of unit holders and oversees the manager's compliance with the trust deed. The regulator, the SECP, licenses the manager, approves the offering documents and mandates the disclosures — NAV calculations, portfolio statements and financial reports — from which the fund can be followed. The fund itself, as a trust, has no employees and no factories; its "earnings" are the dividends, interest and capital gains of its portfolio, which flow to unit holders as distributions or accumulate in NAV, depending on the fund's stated policy.

Why the discount is the story with HGFA

For most listed securities, price discovery is about the business. For a listed fund unit, there are two prices to think about at once: the exchange price and the underlying value per unit. With HGFA's Class A, the gap between them — the discount or premium — reflects how the market values a locked, concentrated portfolio that cannot be redeemed at will, the liquidity of the units themselves, and expectations about the frozen assets' future, including any change in the arrangements that froze them. If those arrangements were ever unwound and the portfolio became freely realisable, the logic of the discount would change with them; while they persist, a thoughtful reader watches both numbers and the distance between them, rather than either alone. This two-price discipline is the single most transferable lesson HGFA teaches, and it applies to every closed-end and listed fund vehicle an investor meets — including the REITs and other fund constituents that periodically sit beside HGFA in the KSE-100, whose construction our KSE-100 explainer and market capitalisation guide unpack.

A note on what HGFA is not will save readers several common errors. It is not a share in HBL, nor in HBL Asset Management: buying HGFA confers no claim on the bank's profits, only on the fund assets behind the Class A units. It is not a guaranteed or capital-protected product: the value of those assets moves with the market, principally with the energy shares in the frozen portfolio. And it is no longer, despite the "Growth Fund" name it shares with a living open-end scheme, a way to buy the manager's current diversified equity portfolio — that exposure belongs to the open-end units transacted at NAV off-exchange. The same name on two different instruments is a trap the 2018 restructuring left behind, and this profile exists largely to disarm it: same family, same manager, different paper. Pakistani fund history contains a handful of such survivals — restructured vehicles whose tickers outlived the structures that created them — and HGFA is the most prominent still trading.

What followers of HGFA typically watch

Readers of HGFA focus on the reported value of the underlying portfolio per Class A unit against the exchange price — the discount itself; on the share prices and fortunes of PSO and SNGPL, given the frozen portfolio's concentration; on distributions announced by the fund; on any regulatory or privatisation development touching the frozen holdings; and on trading liquidity in the units, which affects how easily positions can be entered or exited. This profile is educational content, not financial advice: those observations explain the instrument's behaviour and are not a recommendation to buy or sell HGFA units. Aktzien, the app being built for Pakistan, plans to flag fund-type listings distinctly from operating companies for exactly the reasons this profile sets out — and the learning library gives the background in NAVs, fees and fund structures that makes the distinction second nature.

Key takeaway: HGFA is not a company but a fund with a layered past — created in 2004 as the closed-end PICIC Growth Fund from the old ICP funds, managed by HBL Asset Management since 2016, and split in 2018 into redeemable open-end units and the listed Class A units (HGFA) that represent its frozen PSO and SNGPL portfolio and trade, like any closed-end fund, at a market price that can stand at a discount or premium to asset value.