Wrong idea in market that we are not professionally run: Top UTI AMC exec

In a Q&A, three of the firm's top brass dwell on its forthcoming IPO, the state of the MF industry and issues surrounding the company's ownership structure

Thirteen years after it was first mooted, UTI AMC is set to hit the market with an initial public offering of Rs 2,160 crore that will enable its five shareholders to offload 30.75 per cent, valuing the AMC at over Rs 7,000 crore. Chief executive Imtaiyazur Rahman, head of fixed income Amandeep Chopra and head of equity Vetri Subramaniam tell Ashley Coutinho that listing will help the company write a new chapter and communicate to the market that it is a professionally run organisation. Edited excerpts: 

UTI AMC was the top asset manager till FY06 but seems to have lost its way a bit in the past decade, consistently slipping in rankings and market share. How does the AMC plan to improve on these parameters?

Rahman: We have arrested all downfalls and are poised to grow in an industry which is extremely attractive. We are the second largest asset manager in the country. Specific to mutual funds, our rank may be different but we continue to remain among the most profitable AMCs. We have faced crises in the past but have the strong ability to bounce back. Both our equity and debt schemes are performing well and that will help us to grow. UTI has the support of a wide network of independent financial advisers (IFAs) to distribute our products, and our relationship with distributors from the banking channel has improved as well. 

A key challenge over the past few years has been the inability to resolve UTI’s governance structure and get the shareholders, trustees and the government on the same page about the AMC’s future. What is the AMC doing to resolve the conflicts arising out of its ownership structure and will the IPO help in this regard? 

Rahman: There is a serious misconception in the market that four Indian shareholders tried to control UTI. None of them has ever tried to take control of UTI’s assets. We are and will continue to be a professionally managed organisation. The listing will help us in communicating this to the market and write a new chapter. On the day of listing the shareholders’ agreement will fall away and the new article of association which was approved last year by shareholders will come into force. This article indicates that any shareholder holding more than 10 per cent and up to 20 per cent stake will have the right to appoint one director. And any shareholder which holds 20 per cent and below 30 per cent above will have the right to appoint two directors, and so on. In the process, Punjab National Bank will have a right to appoint one director and T Rowe Price, which has been a strategic partner to us, will have the right to appoint two directors. All our policies and processes are market-linked, be it the salary structure or the HR policies. Indeed, it is my responsibility as chief executive of UTI AMC to get the best out of these marquee shareholders and ensure harmony among them. 

Could you shed some light on the IPO pricing? The issue size was expected to be Rs 3,000 crore; it is Rs 2,160 crore now... 

Rahman: The issue size has not been reduced. The shareholders are offloading 30.75 per cent stake, which is what was originally intended. As far as the valuations and pricing is concerned, these things are driven by market forces. The price has been decided by the investment bankers based on the feedback from investors. 

The industry is seeing outflows on the equity side even as margins are shrinking due to the regulatory changes. Equity funds, particularly large caps, have been struggling to beat benchmarks. The industry may not be able to grow at a CAGR of  18-25 per cent that is has clocked in the past few years. What is your assessment of the same? 

Subramaniam: Despite the cyclicality of flows, the fact remains that financial savings in India are growing even as money is moving out of physical assets. And given that mutual fund assets are much smaller than bank deposits there is room for growth. Yes, over time it has become more challenging managing active money. But if you look at the longer term track record of our large cap funds, the strategy has delivered pretty strong returns relative to benchmarks over long time periods. Our alpha outcomes across other equity categories over a 10 year period have been robust as well. Passive funds have grown in recent years. We will do what we need to gain a significant market share in the segment and ensure that the tracking error is best in class. We already have offshore and AIF products as well as advisory mandates on the PMS platform, which we will continue to grow. The market will continue to evolve and there will be demand not just for passive products but also structured and complex ones. 

Imtaiyazur Rahman, Chief executive officer, UTI AMC

Your debt schemes enjoyed a good run until the credit crisis erupted a couple of years ago. What are the learnings from the recent failings?

Chopra: We have 18 years of experience in managing fixed income funds and had a good track record until 2018. UTI has always had a robust risk management structure in place which helped us avoid credit issues in the past. We have further strengthened our investment and risk processes, particularly by increasing our research capabilities on the debt side, given the issues faced in the last couple of years. We have also put in place a strong resolution recovery structure which ensures investor interests are protected at various resolution forums. We have been successful in recovering money from an education as well as a telecom company recently. We have other cases at different stages of resolution at NCLT, and are pursuing it actively to ensure that we recover a fair amount of provisions or mark downs that we have taken in our funds. We are engaging with distributors to ensure that we continue to get money in funds which were impacted last year. 

Amandeep Chopra, Head of fixed income, UTI AMC

The AMC has a strong network of IFAs, especially in the tier-2 and tier-3 cities but has not quite been able to tap the banking channels. How does the AMC plan to address this?  

Chopra: We have the widest and deepest reach across the country. We have 163 branches that cater to investors and B2B channels, which includes IFAs. We also have a unique distribution channel comprising business associates which cater to investors in regions not serviced by physical branches. This has helped us penetrate into the hinterland. We cover 96 per cent of districts in the country through our own distribution network and enjoy the highest market share among B30 cities. 

Subramaniam: Our equity products are now on the platform of all significant national distributors and banking channels, which was perhaps not the case 10 or 15 years ago. We have now made sure that our coverage in terms of sales support to these institutions is at pretty much every location that these banks operate in. And as banks evolve into a more open architecture system we will have a greater chance to be present and compete. 

UTI is India’s first AMC and has a strong brand recall in tier-2, tier-3 cities. What is the company doing to strengthen its brand and image? 

Rahman: We are conscious that we need to refresh our brand to stay relevant with all stakeholders. Our strategy will be to garner high yielding assets in top 30 cities while maintaining our presence in tier 2 and tier 3 cities. To that end, we have increased our presence on several digital platforms and signed up with fintech companies. 

Chopra: The investor education campaign plan that we have been running for the past 10 years has helped investors plan their investments better, and strengthened our brand recall. 

Employee associations have alleged that the AMC has pension liabilities to the extent of over Rs 1,000 crore. You maintain that the liabilities aren't quantifiable at this stage. Notwithstanding the exact quantum, will the government step in to foot the bill? 

Rahman: The matter is sub-judice and it is not appropriate for me to speak on this. We have clearly outlined our stand in the red herring prospectus, and are waiting for the court to arrive at a decision.