Fund manager churn at new high

TRENDS: The mutual fund industry in India is seeing unprecedented attrition among key personnel.

Ask any investment house, and they will tell you that retaining good personnel is their first priority. More than half of the mutual fund houses in the country have experienced unprecedented churn among their fund managers in the last couple of years.

Are fund managers leaving because of the pull of big salaries and top corporate brands?

"It is definitely big salaries and global names that have been behind the job hopping. Job changes from one fund house to another are rampant. Private equity and venture capital funds are other areas attracting talent," says Manish Varma, Assistant Vice President, Principal PNB AMC.

There are currently 31 fund houses in India with more than Rs 3 trillion ($65 billion) in assets under management (an all-time high), against the country's GDP of $765 billion. The industry estimates that in the next three years, the number of fund houses is likely to double, with most global names entering India.

The widening gap between the demand for and supply of fund managers has resulted in a substantial salary appreciation for them. In the last five years, their salaries have gone up by 40-50 per cent. A fund manager with an average-sized fund house currently earns around Rs 15-20 lakh a year.

The soaring demand for fund managers has also brought about a reduction in the experience level needed to become one.

"Five years back, a fresh MBA passout had to equip himself with six or seven years of industry experience to become a fund manager. This standard has not been brought down by a large extent, but there have been a few cases where AMCs have appointed people with just two-and-a-half years of experience as fund managers. Still, most fund houses expect fresh graduates to spend four or five years in the industry before managing a fund on their own," says the HR head of a top fund house.

Besides generous salaries and all-round experience in their career graph, industry sources see greater autonomy as a reason why bright fund managers are heading towards venture capitalists. "Compared to an MF, VCs are more profit-oriented.

As a result, the VCs give managers more decision-making power, which could prove to be an attractive feature for some. But at the same time, their profit expectations are higher, which in one sense comes with more work and less time for personal life," says the HR head.

Others point out that at a time when vast swathes of the economy are facing a talent crunch, it would be unrealistic to expect things to be any different for fund managers.

Says Ajay Bagga, CEO of Lotus AMC: "It's not only the fund industry which is facing the blues. Look at the realty sector. We say there is an infrastructure boom in the country, but where are the engineers? Fifteen years ago, nobody wanted to work in civil engineering jobs, everybody ran for technology. Interestingly, IT is also facing talent shortages, to the extent that IT giants are starting their own institutes to meet the demand. The churn in any industry is the outcome of its growth and it is uniform to all."

The AMC has devised a scheme of Employee Stock Options, whereby 19 per cent of its shares are owned by staff members, which Bagga calls "capital appreciation" for employees.

Meanwhile, brokerages and investment bankers are finding it tough to retain research analysts. As a result, some investment houses are even sponsoring education programmes abroad for analysts, paying them better bonuses, performance-based incentives and salary packages, and awarding them ESOPs.

Fund houses are also setting up backup teams as insurance against the sudden exit of fund managers. More fund managers are being hired, as are research analysts from brokerages, and so the job market for both is blossoming.