MF industry stares at worst ever churn as high-profile exits loom

The Indian mutual fund industry may be facing its worst top-level churn ever. DSP BlackRock Investment Managers may be on the verge of losing Anup Maheshwari, currently the Chief Investment Officer (CIO) equities at the fund house. Business Standard was the first to report that Maheshwari had put in his papers. Maheshwari, formerly the head of equities and corporate strategy, has been with DSP BlackRock for more than two decades.

Maheshwari is not alone. Gopal Agrawal, who recently joined Tata MF as CIO of equities, and Ravi Gopalakrishnan, head of equities at Canara Robeco Asset Management have also put in their papers. Ritesh Jain, CIO at BNP Paribas Asset Management may also be on his way out. Dhiraj Sachdev, VP and senior fund manager at HSBC Asset Management has also quit.

Most of the fund houses are yet to officially confirm these departures. “I have not put in my papers and am still part of BNP Paribas MF,” said Jain.

Experts reckon this spate of exits to be a bull market phenomenon. The equity market has seen a sustained rise in the past few years, and rose about 11per cent in FY18.

A fund manager's role is often deemed crucial in a fund set-up. Often, when a good fund manager leaves, the fund starts doing badly; the reverse can also be true. Financial planners often stress on the importance of knowing the experience and background of a fund manager.

“A fund manager is judged on the basis of how his funds have performed and how those funds have done vis a vis others. It’s a tiring job and the constant scrutiny can take its toll after some years,” said a senior official, on condition of anonymity. Fund managers are not gods and are susceptible to bouts of underperformance, he added. “For most managers the environment can be quite unforgiving and more than a year of under-performance can spell their death knell.”

Mutual funds have garnered record assets in the past year, with average monthly inflows of Rs 40-60 billion through Systematic Investment Plans (SIPs). Total MF assets stood at over Rs 21 trillion as of March 31, 2018. In 2017-18, MFs pumped Rs 1.4 trillion into Indian equities, more than six times the Rs 222 billion put in by foreign portfolio investors.

The rise in popularity of Portfolio Management Services (PMS) products and Alternative Investment Funds (AIFs) among wealthy individuals and the emergence of family offices is also attracting senior fund managers from the Mutual Fund (MF) sector. A case in point is former Fund Manager Kenneth Andrade, who quit IDFC MF as head of investment in 2015, to set up a PMS and AIF fund.

“CIOs at large fund houses typically earn Rs 30-60 million annually. Setting up one’s own PMS or AIF can be more rewarding monetarily, owing to the profit sharing clause, and the flexibility to own a concentrated portfolio,” said another senior official.

While equity MFs charge between two and 3.25 per cent in expense ratios, fixed management fees in PMS might vary between one and 2.5 per cent. However, a PMS might have a separate profit sharing arrangement, wherein the fund management fee could also be zero in some cases. For instance, there could be an annual profit sharing arrangement of 20 per cent, meaning on a portfolio profit of 20 per cent at the end of the year, one will have to share the incremental 10 per cent return with the fund manager.  

Exits could also be a function of the diktat to disclose remuneration of key personnel in a fund house, feel experts. The Securities and Exchange Board of India has directed fund houses to disclose information on remuneration of CEO, CIO and COO or their equivalent within one month from the end of the respective financial year effective from 2015-16.