Small fund houses focus on equity assets

It would pay in the long run, they say, as these are stickier than debt assets and can generate higher revenue

Quite a few of the smaller fund houses are focusing on expanding the assets under management (AUM) in equity.

Motilal Oswal MF has raised its equity AUM to about Rs 5,000 crore from around Rs 300 crore three years earlier. In the same period, Mirae Asset MF and BNP Paribas MF have raised equity assets by about Rs 2,000 crore each, from a small base of around Rs 500 crore. Canara Robeco MF, IDBI MF and LIC MF have increased their equity assets by a little more than Rs 1,000 crore.

Different strategies have worked for different players. For instance, Motilal Oswal changed its positioning from being a predominantly exchange-traded fund player to getting involved in active fund management a few years before, said experts. Mirae refocused on sales and distribution. BNP Paribas has benefited from the performance of its schemes, especially its mid-cap fund, which has a five-star rating by Value Research.

“We have differentiated ourselves by staying away from the clutter of me-too business techniques and product plans, and will continue to focus on creating wealth through equities,” said Aashish P Somaiyaa, managing director, Motilal Oswal AMC. Added Swarup Mohanty, chief executive officer (CEO) at Mirae Asset MF: “Focusing on existing products has worked for us.”

For smaller fund houses, increasing equity assets has become harder in the past few years. For one, the Securities and Exchange Board of India (Sebi)’s clamp on new fund offers has hurt them more, as they have fewer schemes in their portfolios compared to the top 10 fund houses. Second, they have had to work harder to convince distributors to sell their products, as the latter prefer more established brands.

“It’s a typical chicken and egg situation. People do not recognise you unless you grow to a big-enough size, and garnering the first Rs 1,000-2,000 crore of assets can be particularly tough,” said Rajiv Shastri, CEO, Peerless MF, which is trying to change its focus from institutional to retail assets. The fund had equity assets of Rs 150 crore as of end-March.

 

Despite the challenges, a focus on equity assets can pay off in the long run as these are a lot stickier than debt assets and can generate higher revenue.

“There are three critical differentiators – brand, scheme performance and sales & distribution network. Distributors give importance to all three,” said Manoj Nagpal, CEO, Outlook Asia Capital.

Mohanty says the importance of scheme performance is taking centre-stage. “Commission is no longer a big pull for distributors. Unlike earlier, the difference in commission paid by different fund houses has narrowed to 10-15 basis points, not a big number,” he said.

A few months earlier, Sebi capped upfront commission – paid to distributors before the sales of an MF scheme – to 100 basis points.

Some benefits come with being a smaller player. “The smaller fund houses are more likely to focus on their core competence, whereas a big fund house will try to be like a supermarket, offering all kinds of strategies to different investors. While smaller equity schemes might be more expensive, the smaller size gives them better agility to realign their portfolio during bouts of market volatility,” said Nagpal.

“Some market players tell us that focusing on equity can be a risky strategy. But, with risk, comes conviction and it is this conviction that we bring to the table,” said Mohanty.