Deserting their Investors: Madhusudan Kela, Ved Prakash Chaturvedi & Nilesh Shah all three have left the Mutual Fund Industry
Two weeks ago, Nilesh Shah, deputy managing director and chief investment officer (CIO) of India’s third largest fund house ICICI Prudential Asset Management Co. Ltd, resigned to seek “other opportunities”. Shah, 42, is one of the three leaders the Rs.7 trillion mutual fund (MF) industry has lost in recent months.
In September, Ved Prakash Chaturvedi, 50, a 20-year industry veteran, stepped down as chief executive officer (CEO) of Tata Asset Management Ltd. A month earlier, Madhusudan Kela, head of equities at Reliance Capital Asset Management Ltd, the country’s largest fund house, moved out of the firm.
Kela, 41, continues to be with Reliance-Anil Dhirubhai Ambani Group, but is no longer involved in the MF business. Chaturvedi is planning his own venture while Shah will decide on his future career path after taking a short break.
For the best part of the last decade, Chaturvedi, Shah and Kela have been among the faces of Indian MF industry. Between them, they were overseeing nearly one-third of the industry’s assets under management.
The number of experienced fund managers leaving the asset management industry has been on the rise. In the past two years, at least 65 fund managers, including CIOs and CEOs, have ventured out of the industry into other financial services, according to MF tracker valueresearchonline.com.
In 2010, at least 35 fund managers left the industry where tighter regulations have increased the pressure on the fund managers and shrinking margins have reduced rewards.
“The dream job of a high-flying fund manager is not the same any more,” said one senior fund manager who recently left the industry and didn’t want to be identified.
Unlike privately managed funds, MFs are governed by elaborate regulations and disclosure requirements, including declaration of a daily net asset value (NAV). This makes a fund manager’s work open for scrutiny by not only superiors, but also by peers, regulators, media and common investors.
“The pressure on fund managers is tremendous. Teams are small and responsibilities are wide. Managing public money keeping in mind day-to-day NAVs is not easy,” said an official from a large private sector fund house, who also spoke on condition of anonymity.
Despite five new fund houses—Pramerica Asset Management Pvt. Ltd, Motilal Oswal Asset Management Co. Ltd, Peerless Funds Management Co. Ltd, IDBI Asset Management Co. Ltd and L&T Finance Investment Management Ltd—commencing business this year, the overall number of fund managers and CIOs remained stagnant at around 260-270, according to data provided by valueresearchonline.com.
Arjun Parthasarathy of IDFC Asset Management, Ashish Nigam of Religare Asset Management Co. Ltd and K. Ramkumar of Sundaram Asset Management Co. Ltd are some of the senior fixed-income managers who left the industry that has seen many regulatory changes since August 2009.
The Securities and Exchange Board of India (Sebi) has introduced changes in MF regulations, including the abolition of entry loads (the commissions that an investor has to pay while purchasing MF units), marking debt instruments to their market value and tightening rules for approval and launch of new fund offers.
Many asset management firms are facing falling profits and some of them even ran into losses in the quarter ended September.
“Industry is still seeing negative inflows at the net level. Forget the variable (compensation), even increments (in pay) are unlikely to happen,” an official from a large private sector fund said on condition of anonymity.
Attrition not only hurts the firms but also investor interest. Top fund managers in developed markets such as Bill Miller of Legg Mason Capital Management Value Trust and Anthony Bolton of Fidelity International have spent nearly their entire career managing a single fund with a single fund house. Miller’s fund beat the market for 15 consecutive years beginning 1991. Bolton managed Fidelity Special Situations Fund for 28 years between 1979 and 2007.
While the pressure is rising, the rewards are shrinking, forcing managers to look for greener pastures, say head hunters.
“Fund managers are looking for opportunities elsewhere as the MF industry has been affected by numerous regulatory changes. As the fee income for the fund houses comes down, their margins are squeezed. While smaller funds are most affected, even the larger fund houses are facing trouble,” said Kris Laxmikanth, CEO, Head Hunters India Pvt. Ltd.
This directly affects the pay cheque of fund managers, Laxmikanth said.
MFs are not making meaningful money any more and fund managers are high-cost resources. Typically, a fund manager’s variable pay, linked to the performance of the fund, is thrice the amount of the fixed pay.
“A senior fund manager typically earns around Rs.40 lakh in fixed pay and Rs.1.2 crore in variable. So, in a good year, the pay could be Rs.1.6 crore. But these salaries have vanished as the industry itself has not done well,” Laxmikanth said.
“Regulatory tightening has certainly made these people a little pessimistic about the growth of the business,” said Dhirendra Kumar, CEO, Value Research, a Delhi-based MF tracker. “But cost may not be a major issue behind this attrition.”
The sheer amount of opportunities and growth prospects that other financial services offer are increasingly becoming too good to resist for fund managers.
For instance, investment banks are always on the lookout for talented executives and fund managers with expertise in analysing companies and valuing them are often easy targets. Ramkumar of Sundaram AMC is one of the fund managers who has become an investment banker.
Other opportunities for MF managers include family offices that manage the investments of wealthy families and hedge funds where regulatory obligations are minimal and financial rewards are lucrative.
Chaturvedi said his decision to leave Tata Asset Management was a personal decision and did not have anything to do with the status of the industry. “It happens to a lot of people after serving in an industry for 15-20 years and there are various compulsions,” he said.
Kumar of Value Research also said personal reasons could be part of the reason for fund managers leaving the industry.
“The rules have changed and people who were very relevant to the industry earlier may not be as relevant for growth in today’s environment. So, while some people are moving out on their own, some must have been pushed out.”