Quantum ignores distributors, AUM at Rs 56cr

Quantum Asset Management Company, which completes two years in March, has gone off the beaten track in an industry which depends mainly on a distributor-led selling model.

Quantum decided to change the rules of the game by being the only fund house which has opted for 100 per cent direct selling. But has it worked?

The numbers show it hasn't. Quantum AMC's assets under management (AUMs) is a paltry Rs 56.81 crore.

Its flagship fund, Quantum Long Term Equity, has lagged behind its peers, returning 23.25 per cent since inception with the average return given by the equity diversified fund category being 28.23 per cent. The fund's AUMs as on January 31 are Rs 43.47 crore.

Quantum AMC has recently completed the new fund offering for the Quantum gold exchange-traded fund where it has collected a princely amount of Rs 3.4 crore.

Says Krishnamurthy Vijayan, CEO of JP Morgan AMC, a fund with greater brand recall would always find it easier to get mindshare with distributors.

Therefore it is natural that an old fund would find it easier to empanel distributors besides building the business. After all, it is like any other business.

No wonder, none of the new entrants such as JP Morgan AMC, Lotus India AMC, AIG and more recently, Mirae AMC has gone for a no-distributor model.

The overwhelming feeling is AMCs with no pedigree will face trouble in finding their feet in the industry if they ignore the powerful distributor lobby.

But, Ajit Dayal, director of Quantum Asset Management Company, begs to differ. For him, the short-term numbers don't give the true picture.

"Investors will see the compounding effect of low expense ratio and lower initial upfront fees if they stay invested with us for 10 years. If our track record is indeed good after three or five years, can the investor or the distributor really ignore us?," he asks.

Dayal says distributors have a stranglehold over AMCs. The more incentive distributors got, the more money they would get for funds.

Of the Rs 100 collected from you, only Rs 94 actually goes into the stock market since the investor is paying as much as 6 per cent to the distributor.

No wonder, the fund house collected Rs 10.7 crore from 780 investors in February 2006 through its new fund offering.

On his investment philosophy, Dayal says, "When we typically buy a stock, we hold it for up to five years. When I am holding a stock for four or five years, some stocks go up and come down. Our fund is not a momentum fund. We don't chase the hot sectors. For instance: the capital goods sector. We are not in capital goods. That could be a research mistake or a high momentum valuation game but we don't understand it. We think real estate companies have come down a bit but they should be half of what they are."

Quantum long term equity fund holds stocks such as Infosys Technologies, Tata Consultancy Services, HPCL and BPCL in its portfolio.

"We were buying oil stocks (HPCL, BPCL) and they were doing nothing. The logic of buying these stocks was how long can the government keep on suffocating the oil marketing companies?

What is the economy going to look like if they are going to liberalise? So we look over time and try to understand the underlying intrinsic value of the company," says Dayal.

Set up as an equity research house in 1990, Quantum Advisors was the local partner for Jardine Fleming (now JP Morgan Chase) that provided all Jardine Fleming's research, broking, investment banking and investment management services in India.