How do fund managers manage their own money?
Just the way they manage yours—by investing in equity and debt schemes, through the mutual fund route, and avoiding direct investment in equities
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You would expect a person who manages other people’s money to have the best or highest yielding investments. Right? That she will never run out of money, and that her bank balance must be healthy? Now just because a fund manager manages your money, doesn’t mean her own portfolio is sorted. The truth is that a fund manager’s portfolio can be as ‘ordinary’ as any of ours.
The other truth is that a fund manager and most executives of a fund house are governed by such stringent restrictions laid out by the Securities and Exchange Board of India (Sebi) that despite buying double-baggers and multi-baggers for you, if they wanted to buy direct equities for themselves, it is difficult to near impossible. So then, where do they invest? Broadly, fund managers and chief executive officers of fund houses Mint spoke to told us that they invest in equity and debt, but most avoid buying equities directly. They prefer to invest through equity mutual funds (MFs).
According to a 2001 Sebi circular, fund managers have to take permission from their compliance officer before investing in equities. If the scrip that she wishes to buy or sell is part of any of the schemes that the fund house manages, she cannot buy or sell that scrip in her personal capacity for at least 15 days from the last time the fund house dealt with it. The 15-day period is called the cooling off period.
Fund managers are required to disclose their holding statements at the end of every financial year. This cooling off period was recently raised to six months under the recently released Prohibition of Insider Trading Regulations, 2015 guidelines that Sebi issued in January.
Suyash Choudhary, head-fixed income, IDFC Asset Management Co. Ltd, splits his portfolio between equities, debt and real estate, in almost equal portions—one-third each. And what real estate does he like? “Quality of builder is important. So is relative liquidity of the property and ability to rent it out at reasonable rates,” he said.
Some fund managers, said Prateek Pant, executive director-products and services at RBS Private Banking, look at funding start-up ventures. “This is true of the new breed of fund managers. If you look at the angel investor community, you’ll find a fairly large number of fund managers there,” he added.
Most fund managers claim that they invest in schemes of their own fund houses. This, some experts say, is done more to project the image that fund managers like their own funds. Not all agree. “That’s more of a jingoistic statement,” said Munish Randev, chief investment officer, Waterfield Advisors Pvt. Ltd, a wealth management firm. “No matter how good a fund house is, there will be other fund managers who will also do well, or better at times. I know of many fund managers who also diversify outside their own fund houses,” he added.
In July 2015, Kotak Mahindra Asset Management Co. Ltd made it mandatory for all its employees to invest only in its schemes. It isn’t mandatory for them to invest in MFs, but if they choose to invest in MFs, the rules now mandate that it has to be only in Kotak’s.
“It is our statement to our customers that we believe in our own schemes. It’s like saying that the owner of the restaurant eats in the same restaurant,” Nilesh Shah, managing director, Kotak Mahindra Asset Management, had told Mint when the rule was announced in July 2015. The rule applies to executives’ incremental investments and not their existing ones.
This diktat, though, has not gone down well with the rest of the fund management community. “It’s very easy for Nilesh Shah to say that I will only eat in my own restaurant. But if your restaurant serves only Chinese food everyday, I don’t want to eat Chinese everyday yaar. I might want to eat biryani one day. Or even patra-ni-macchi (a Parsi fish delicacy),” said Soumendra Nath Lahiri, chief investment officer, L&T Investment Management Ltd, said with a mischievous twinkle in his eye.
Lahiri’s own money lies in some of the funds he used to manage in his previous stints. Interestingly, he is one of the few managers who still buys equity directly. But to avoid regulatory tangles, he stays away from stocks that his schemes own. “There will be some shares that I will not buy in my funds, like those with market capitalisation as little as Rs.40-50 crore. But since I am a long-term investor and don’t mind waiting for 4-5 years, I will buy some of these companies,” he said. Lahiri is currently saving for his 16-year-old daughter, who he said might go abroad for higher studies. That’s another question: Do fund managers have goals?
“That’s something I don’t go into specifically. I build a war chest. Whether that will be used for my kid’s education or marriage or my own retirement... it should hopefully take care of such things. My war chest is designed to give me inflation-adjusted returns,” said Akshay Gupta, chief executive officer, Indiabulls Asset Management Co. Ltd.
Suresh Soni, chief executive officer, Deutsche Asset Management (India) Pvt. Ltd, has a similar approach. “Money is fungible in my portfolio, so I don’t create separate plans for separate goals as such,” he said.
Fund managers’ concept of asset allocation appears to have shifted to risk allocation in recent years, said Randev. “They clearly tell us: put this portion in zero principal risk; it’ll go in fixed deposits and liquid funds. And put that portion in market-linked products,” he said.
Most fund managers Mint spoke to said they invest in direct plans. But some, like Karan Datta, chief business officer, Axis Asset Management Co. Ltd, are happy to go through a distributor. Datta has been investing through the same distributor for the past 15 years.
As it turns out, fund managers have the same goals, aspirations and almost as many asset classes as the rest of us have. While most of their time is taken up in managing your money, they devote what’s left of it to their own portfolios.