Mumbai: UTI Asset Management Co. Ltd, India’s fifth largest mutual fund house, is still struggling to fill the post of chairman and managing director (CMD) two years after U.K. Sinha stepped down from the post and moved to head capital market regulator Securities and Exchange Board of India (Sebi).

In the two-year hiatus, the country’s oldest asset management company (AMC) has seen rivals grow faster, signalling an erosion of its competitive edge.

Since Sinha’s departure in February 2011, the fund house’s assets under management (AUM) have risen by about 3,500 crore, outpaced by most of its closest rivals. HDFC Asset Management Co. Ltd, Birla Sun Life Asset Management Co. Ltd and SBI Funds Management Co. Ltd saw their AUM rise by about 15,000 crore, 13,200 crore and 11,700 crore, respectively, in the same period.

Part of the reason for the vacuum at the top appears to be a stand-off between the government and the AMC’s largest shareholder, T Rowe Price Group Inc., a US-based fund house that has a 26% stake in it, over a suitable candidate for the job, according to media reports.

The search for an outsider to head the fund house also shows up its inability to groom, and retain, its own executives to take up greater management responsibilities.

“No good institution should remain headless for such a long time," said S.A. Dave, a former chairman of the erstwhile Unit Trust of India (UTI), which was split into two in 2003, and Sebi.

“This is nothing new. For eight months after I had left, the CMD’s post was vacant and successor was not appointed. This is a financial institution and it is competing in the market place. There is investor’s money involved, investors who have been loyal to UTI AMC and have been with it through thick and thin," said M. Damodaran, former chairman and managing director, UTI AMC, who led the firm between July 2001 and December 2004. “Leadership of any fund house is important. To keep that post vacant for so long is callousness."

UTI AMC has been slipping in the ranking of mutual fund houses as competition intensifies for customers in the 8.26 trillion asset management industry. From being the largest till December 2006, it has slid to the fifth position, with assets under management of 70,638 crore.

Global executive search firm Egon Zehnder, which has been given the job of finding potential CMD candidates for UTI AMC, and T Rowe Price said they expected the search to end soon.

“We are committed to searching a capable CMD and we are hopeful that this process gets complete soon," Sanjiv Sachar, a partner at Egon Zehnder, said over the phone.

Brian Lewbart, vice-president and senior manager of public relations at T Rowe Price Associates, conceded in an email that the process of selecting a new CMD “has taken longer than expected".

“We continue to have faith in the board of UTI and are confident that the board-led search process will identify a strong candidate to lead the firm," Lewbart said.

According to people familiar with the situation, Egon Zehnder’s task is to search for potential candidates, interview them, and send a shortlist to the search committee. This consists of UTI AMC directors P.N. Venkatachalam, Sachit Jain and James Sellers Riepe, people aware of the development said on condition of anonymity.

The panel then forwards its recommendations to shareholders State Bank of India, Life Insurance Corporation of India, Bank of Baroda and Punjab National Bank, each of which own an 18.5% stake in the fund house, apart from T Rowe Price, which bought its 26% stake in late 2009.

The search that’s now underway is UTI AMC’s third attempt to find a chief in the last two years. This follows a November 2012 advertisement in some English business dailies inviting potential candidates to apply for the post. The money manager published a similar ad in June 2012, after which the selection process reached a dead end.

A member of the UTI AMC board declined to comment on the progress that had been made in the search for a new chairman. The member declined to be named.

UTI AMC was launched in 1963 as Unit Trust of India under a special act of Parliament to mobilize savings and encourage Indians to save. In 2003, it was bifurcated into two parts—schemes that offered investors assured returns were transferred to a separately created entity called Administrator of the Specified Undertaking of the Unit Trust of India, while all other schemes went to UTI AMC, a Sebi-registered fund house that was born after the split.

Although the fund house is run like a private-sector entity, especially since the erstwhile UTI was split into two, some industry officials say the fund house did little to groom in-house talent.

“An institution like UTI AMC that has produced talent enough to go and lead other fund houses in the industry could not harness any for itself internally. A large institution like UTI AMC should have given opportunities to its own team of people to be able to take the top jobs within the AMC," said the CEO of a large fund house who did not want to be named.

Sanjay Sinha, who worked as a fund manager at UTI AMC for 16 years, went on to head DBS Cholamandalam Asset Management Co. Ltd, which was later acquired by L&T Finance in 2010, for a period of three years. Jaideep Bhattacharya, once chief of marketing at UTI AMC, now heads Baroda Pioneer AMC. G. Pradeepkumar, who headed UTI AMC’s international operations, now heads Union KBC AMC.

When Sinha left for Sebi in February 2011, there seemed to be rush to find a successor, even as reports of attempted interference in the process appeared in the media, including The Indian Express and The Economic Times newspapers.

It eventually took more than a year after Sinha’s departure to advertise for a replacement. The board of UTI AMC only issued a call for candidates in June 2012.

Some names, including those of Leo Puri, McKinsey and Co. India’s senior adviser, and Sunil Mehta, erstwhile country head of AIG India, reportedly did the rounds as potential candidates, according to The Indian Express and The Economic Times.

That round of searches didn’t lead to a resolution, the upshot being the restart of the search in November 2012.

“The MF (mutual fund) industry is going through a difficult phase at the moment," said the CEO of another fund house on condition of anonymity. “Here’s when any fund house needs capability of decision-making to cope with the environment and have compatible people in place at the top to deal with peer pressure."

The last three years have seen many changes in the rules that govern the Indian mutual fund industry. Fund houses were pushed to rethink their business models when entry fees were abolished in 2009. Though Sebi reviewed the MF industry’s cost structure last year and, as a result, allowed fund houses to charge more to be able to incentivize distributors, such game-changing rules warrant good leadership at the top to give direction to the fund house. Not the best time for the country’s fifth biggest mutual fund house to have gone leaderless for two years.

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