 "A fund has to outlive the fund manager: Naval Bir Kumar")
The exit of star fund manager Kenneth Andrade has caused some unrest in IDFC Mutual Fund, with some distributors using this as an opportunity to churn investors’ money. Naval Bir Kumar, the fund’s vice-chairman, tells Joydeep Ghosh the mix of 240,000 investors in the Rs 7,000-crore IDFC Premier Equity scheme, the flagship fund, will ensure steady flows. Edited excerpts:
How are distributors and investors reacting to the Andrade exit?
Let me admit that whenever a very well-recognised fund manager who has achieved success quits, it causes people to revalue it. It’s quite natural. We are being pro-active in talking to people. There have been some distributors who are using this opportunity to churn. But, they are in a minority. Distributors and investors should realise the companies that Kenneth has invested in won’t close in three or six months. We have held many of these stocks for over five years.
Not many. Our mix of investors gives us a lot of comfort. We have 240,000 investors in the Rs 7,000-crore IDFC Premier Equity Scheme. The mix in the scheme is 45 per cent retail investors (less than Rs 5 lakh each), 33 per cent high net worth individuals (Rs 5 lakh-1 crore), 13 per cent large high net worth individuals (over Rs 1 crore) and others are nine per cent. Only 13 investors have more than Rs 10 crore. We have inflows of about Rs 700 crore annually through systematic investment plans and systematic transfer plans.
What is your investment strategy?
When IDFC MF started as a pure debt fund house, Rajiv Anand (currently head of retail banking at Axis Bank) and my philosophy was that whether we were investing in debt or equity, there should be a medium-term view and changes can be made within a band. For example, in debt, we decided not to take a credit risk but were willing to take an interest rate risk. We don’t buy papers below an ‘AA’ rating because there isn’t a junk bond market in India, but we actively manage interest rate risks.
In equities, we invest in capital-efficient companies, with low leverage and market leadership. Also, we are looking at companies in sectors which are consolidating because it gives pricing power. So, the top 10 we own in IDFC Premier have been there for over five years. It is a similar case for many other stocks.
Since retail investors are prone to entering the market when valuations are high, we took the decision to allow entry to lumpsum investors only when valuations were cheap. We have allowed it only seven times during IDFC Premier’s tenure. Anyone who invested in these seven occasions would have made money. Since we are a thematic fund manager, we realise that most themes make money at the bottom of the market and die at the top. At the bottom, even fund managers need money to invest.
Despite this, there have been some worries...
Investors should realise we believe in creating a fund till perpetuity. So, there will be handovers from one fund manager to another. Even Kenneth was the second fund manager of IDFC Premier. Bobby Surendranath was the first one.
Are you looking for a replacement from within or outside?
We haven’t decided. Punam Sharma, head of research, will be the interim head. She has been working on IDFC Premier even before Kenneth. Half the stock ideas are hers. So, there are no issues. But fund management is an art as much as a science, while investment management processes are needed because products are being built and the team needs to work together. The art lies in picking a theme before others, buying and holding it during ups and down– which Kenneth has. But fund managers do leave because they have other aspirations. However, the fund has to outlive the fund manager.
Some fund houses believe that instead of a single star fund manager, there should be multiple ones managing, say, 20-25 per cent of the corpus each.
Every fund house follows a different framework. This could be one way of de-risking. But even if there are four-five fund managers, only two will be successful. All the others aren’t likely to get the same amount of money. Even star managers doing well for 15-20 years lose money.
Standard Chartered MF's acquisition by IDFC at over Rs 800 crore in 2008 was the most expensive one. Are you making money now?
From IDFC’s perspective, the acquisition has turned out quite well. When we bought it, the assets under management (AUM) were Rs 12,000 crore and the presence was in 12-13 cities. Today, the AUM stands at Rs 57,000 crore and the presence has expanded to 40-odd cities. The profitability (after tax) has increased to around Rs 100 crore from below Rs 10 crore in 2008. We sold 26 per cent to Natixis Global Asset Management in 2011 for a 50 per cent premium.
How are distributors and investors reacting to the Andrade exit?
Let me admit that whenever a very well-recognised fund manager who has achieved success quits, it causes people to revalue it. It’s quite natural. We are being pro-active in talking to people. There have been some distributors who are using this opportunity to churn. But, they are in a minority. Distributors and investors should realise the companies that Kenneth has invested in won’t close in three or six months. We have held many of these stocks for over five years.
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Have you seen exits?
Not many. Our mix of investors gives us a lot of comfort. We have 240,000 investors in the Rs 7,000-crore IDFC Premier Equity Scheme. The mix in the scheme is 45 per cent retail investors (less than Rs 5 lakh each), 33 per cent high net worth individuals (Rs 5 lakh-1 crore), 13 per cent large high net worth individuals (over Rs 1 crore) and others are nine per cent. Only 13 investors have more than Rs 10 crore. We have inflows of about Rs 700 crore annually through systematic investment plans and systematic transfer plans.
What is your investment strategy?
When IDFC MF started as a pure debt fund house, Rajiv Anand (currently head of retail banking at Axis Bank) and my philosophy was that whether we were investing in debt or equity, there should be a medium-term view and changes can be made within a band. For example, in debt, we decided not to take a credit risk but were willing to take an interest rate risk. We don’t buy papers below an ‘AA’ rating because there isn’t a junk bond market in India, but we actively manage interest rate risks.
In equities, we invest in capital-efficient companies, with low leverage and market leadership. Also, we are looking at companies in sectors which are consolidating because it gives pricing power. So, the top 10 we own in IDFC Premier have been there for over five years. It is a similar case for many other stocks.
Since retail investors are prone to entering the market when valuations are high, we took the decision to allow entry to lumpsum investors only when valuations were cheap. We have allowed it only seven times during IDFC Premier’s tenure. Anyone who invested in these seven occasions would have made money. Since we are a thematic fund manager, we realise that most themes make money at the bottom of the market and die at the top. At the bottom, even fund managers need money to invest.
Despite this, there have been some worries...
Investors should realise we believe in creating a fund till perpetuity. So, there will be handovers from one fund manager to another. Even Kenneth was the second fund manager of IDFC Premier. Bobby Surendranath was the first one.
Are you looking for a replacement from within or outside?
We haven’t decided. Punam Sharma, head of research, will be the interim head. She has been working on IDFC Premier even before Kenneth. Half the stock ideas are hers. So, there are no issues. But fund management is an art as much as a science, while investment management processes are needed because products are being built and the team needs to work together. The art lies in picking a theme before others, buying and holding it during ups and down– which Kenneth has. But fund managers do leave because they have other aspirations. However, the fund has to outlive the fund manager.
Some fund houses believe that instead of a single star fund manager, there should be multiple ones managing, say, 20-25 per cent of the corpus each.
Every fund house follows a different framework. This could be one way of de-risking. But even if there are four-five fund managers, only two will be successful. All the others aren’t likely to get the same amount of money. Even star managers doing well for 15-20 years lose money.
Standard Chartered MF's acquisition by IDFC at over Rs 800 crore in 2008 was the most expensive one. Are you making money now?
From IDFC’s perspective, the acquisition has turned out quite well. When we bought it, the assets under management (AUM) were Rs 12,000 crore and the presence was in 12-13 cities. Today, the AUM stands at Rs 57,000 crore and the presence has expanded to 40-odd cities. The profitability (after tax) has increased to around Rs 100 crore from below Rs 10 crore in 2008. We sold 26 per cent to Natixis Global Asset Management in 2011 for a 50 per cent premium.