Tipping point: Sales versus fund managers

Imagine a sales head at a fund house knocking straight into a fund manager's room and literally forcing him to attend an impromptu conference call with a large distributor at a time when the fund manager was in the midst of analysing his schemes' portfolio on the 'Brexit' referendum day.

Further, just put yourself in a situation when a day before a 'planned' weekend trip with family, a fund manager is asked to fly to Chennai to address a bunch of distributors and investors. 

Such anecdotes are aplenty. Rather, they have risen quite sharply over the last two years ever since the Indian mutual fund industry has been garnering historically higher assets. 

Pressure has mounted to such extent that fund managers are now doubtful about their role in asset management companies (AMCs). It may not be surprising then to see prevailing practices trigger fund managers' exit.

"In my experience so far (two decades), life has never been so stressful as it is now. Majority of the time I am travelling across the country — meeting investors and distributors. And in office, I am dealing with countless and worthless conference calls. Am I supposed to do this? Not at all — this is not my job," says a chief investment officer (CIO), who did not wish to be named.

Fund management is the core activity of asset managers. Everything else is secondary. Even the top management of these fund houses believe — at least in theory — that money chases fund performance. However, the reality is diametrically opposite in the Rs 14-lakh crore fund industry. 

CVR Rajendran, chief executive of Association of Mutual Funds in India (Amfi), had once told this paper: "There is no need to fight for market share. Instead, we could expand the market, following the 'blue ocean strategy', while creating uncontested market space and making competition irrelevant."

When Business Standard did a quick random check with sector's top officials, surprisingly, none knew about such a strategy. 

Rajendran's comments had come against the backdrop of rising competition among fund houses. He was of the view that India has an immense potential for the fund industry market to grow at least five times. Currently, less than 1% of India's 1.25 billion population has investments in mutual funds.

Though chief executive officers (CEOs) always maintain they are not in the 'asset-gathering' race and that performance track record is the priority which can't be compromised with.

But you talk to a sales head and he reveals: "Paise laane ki bahaut fight hai, pressure badh gaya hai. Jaise bhi ho, funds laana hai varna competitor aage nikal jayega. (There is immense pressure to bring in money into our schemes; else competitors will run over us)."

According to fund managers, they are left with very little time to concentrate on fund management. "I believe meeting distributors is an unproductive job beyond a certain extent. But the management, along with sales and marketing team, has a different thought process. They want our faces to be in front of distributors and investors. This is 100% not a healthy practice and must stop as it is not good for any of the stakeholders; be it investors, distributors or the AMCs," explains another top CIO of the industry.

Fund houses are in the blame-game and give references of their peers who are doing this; which forces them to do the same.

"I have clearly told my CEO that my job is to manage funds and I am answerable to my investors. Instead of meeting distributors, I would prefer spending time in meeting companies, visiting their plants and doing research. Industry has given too much importance to distributors and they are now sitting on our heads. I admit, it's the AMCs that are at fault and this needs to be rectified before it becomes worse," says an equity head, who is now an expert in making unavoidable excuses to escape sales' requests.

Kaustubh Belapurkar, director of manager research at Morningstar India, says: "It goes without saying that the primary job of fund managers is managing money. But given the current market situation, they may be required to help the sales and marketing team but only to an extent without affecting the fund manager's job. Having said that, I think there is a need to draw a fine line about how much time is adequate for marketing purposes by fund managers. So that fund managers do not feel being stretched. This also calls for a case of developing a specialist role in AMCs to handle distributors who can convey fund managers' views."

Fund managers agree with Belapurkar and put suggestions to arrest current practice. They say there should be a limit on how much time the sales and marketing team can take of fund managers. Further, there should be product heads who should be the face of our investment team to interact with distributors and investors. 

"This will help us save a lot of our time which can be put to use in productive works. One needs to remember that it's the track-record of performance which sells. And it can be built only when we remain concentrated on our core job — fund management," he says.

What is irking fund managers is that they often meet distributors who are also meeting other fund houses. It defeats the purpose of bringing in new faces and regions in the ambit of mutual fund industry.

It's a fact that the management's growth-in-business-related calls have unsettled fund managers. The top officials need to understand that over the last two years, investors have shown incredible confidence in mutual funds. Not only have they poured in the highest sums of money, but also have understood the power of mutual funds as investment vehicles. Any actions which break their trust may push them back in a long hibernation — a situation which will not be good for the mutual fund industry.