Winds of change at UTI Mutual Fund

Leo Puri's appointment as MD shows T Rowe Price has finally secured a decisive voice

 

As dust settles at UTI Mutual Fund, with a permanent head set to take charge, after over two years of dallying, the focus is now on the changes that could happen at the country’s oldest asset manager. Prima facies, the selection of McKinsey veteran Leo Puri as UTI’s managing director might appear a ’business as usual’ step to fill the top position. But insiders and fund industry officials see his appointment as a move that marks the emergence of one shareholder as a dominant force — T Rowe Price.

UTI’s main shareholders are state-owned banks State Bank of India, Punjab National Bank, Bank of Baroda and public sector insurer Life Insurance Corporation of India, which hold 18.5 per cent each. US investment manager T Rowe Price owns the remaining 26 per cent.

Despite the overbearing presence of government entities on the UTI board, the appointment of Puri, who is said to be having T Rowe Price’s backing, as the fund’s chief is an indication of its growing influence in the functioning, according to insiders.

The US money manager purchased 26 per cent stake in UTI in 2010 when U K Sinha was the chairman and managing director (CMD) of the fund. However, after Sinha moved to the Securities and Exchange Board of India (Sebi) as chairman in February 2011, the CMD’s post was lying vacant till Wednesday, when shareholders agreed to appoint Puri as MD. In the meeting, the CMD’s post was also split for the first time in the fund’s history with shareholders in the process of appointing a chairman.

While Puri had earlier applied for the CMD’s position, sources said he agreed to take up the role of MD on assurance that the chairman would be non-executive.

The buzz is the fund could rope in a retired insurance industry official as chairman. This makes Puri the operational head of UTI.

In 2011, T Rowe Price had strongly opposed a proposal to appoint senior bureaucrat Jitesh Khosla as UTI’s CMD because it wanted a professional to head the fund and that he was not among those shortlisted by executive search firm Egon Zehnder. It was alleged the finance ministry was backing Khosla’s candidature. He is the brother of Omita Paul, secretary to Indian President Pranab Mukherjee.

After Khosla exited the race for UTI’s top position in May 2012, shareholders re-started the process of looking for the right candidate. However, the decision to appoint the fund’s chief took almost a year as differences among shareholders resulted in flip-flops.

Sources said the finance ministry stayed away from the most recent selection process, leaving the decision-making to the shareholders.

“The finance ministry had bigger things to deal with on the macro-economy front. It did not show any interest in the selection process,” said a person familiar with the matter.

A theory doing the rounds is that the government was also wary of T Rowe Price voicing strong opposition at a time when India’s reputation as a destination for foreign firms to business has taken a beating. Any move by T Rowe Price to sell its stake in UTI would have dented the government’s image, the person quoted above said.

Of late, T Rowe Price has been more active in UTI’s operations, sources pointed out. A T Rowe Price representative reportedly participated in the recent appraisal processes of select senior UTI officials.