All our shareholders have in-principle agreed to our listing plans6 min read . Updated: 19 Dec 2016, 03:52 PM IST
UTI Asset Management Co.'s Leo Puri talks about the company being more than just a mutual fund, IPO plans and more
What was once the most dominant company in the mutual funds industry is now India’s sixth largest. But Leo Puri, chief executive officer, UTI Asset Management Co. Ltd, spoke to Mint Money and said that UTI is an asset management company (AMC) and not just a fund house with interests in retirements, pension and alternative investments space. The fact that UTI is an independently owned as opposed to one owned by a company or a bank—as most of its large competitors are—adds to the firm’s independence and credibility. Its proposed initial public offer will only broaden the ownership, he said. Edited excerpts:
All the large-sized funds have a supermarket approach. Everyone has a large-cap fund, mid-cap fund, long-term bond fund, short-term and bond fund. Do you think UTI AMC can, perhaps, develop and stay within a niche area?
It’s not about being specialised versus non-specialised. We are a focused AMC and unique in that regard. We are trying to build a set of different businesses; apart from a thriving domestic mutual fund business, we have a successful offshore business, which everybody does not have.
The international business is a promising segment, with offerings in fixed income, equity and alternative investments. We are also a leader in the retirement business, with a presence in, both Employees’ Provident Fund and National Pension System. That’s strategically important for us. We have a small but strong foundation in the alternative investment space through UTI Ventures and UTI Capital.
So, we are not just a mutual fund. UTI is an asset management company, which runs across these four fairly distinct businesses. Our total assets under management (AUM) is now Rs3 trillion.
Also, we are independently governed. It is critical for our industry’s development that we have AMCs that are not owned, guided or directed by other institutions, like banks or corporates. It is an accident of history that essentially the Indian market is dominated by such institutions.
You come from a mindset different from UTI. Have you been able to change the brand’s image and make it more modern?
We have to build on the strength of our legacy but not live in the past. Our legacy has given certain strengths; they only matter if they are the foundation for the future, otherwise they are purely nostalgia. We have to understand elements of our legacy; the capacity to build and acquire customers at a large scale; the ability to build distribution networks, especially in tier-3 towns and beyond, and so on.
A lot of baggage gets acquired in old institutions. The inability to keep up with fast changing markets, respond with agility to competition, create a meritocracy, where there is sufficient understanding that your contribution will develop your career as opposed to merely growing old in the firm. These are some areas that must be balanced. We have staff who has been with UTI for decades, and those who may have been with us for just a few years. We have combined these two populations quite well.
Somehow the perception is that the novelty in your thinking hasn’t percolated to the sales staff. Distributors say they lack aggression. They “request" distributors to consider UTI, whereas other firms’ sales staff pitch why their products must be sold.
There is some fairness in this point, but not entirely. Actually, the competitive spirit and the desire to succeed is quite well percolated. Our front line is highly committed, motivated, and charged up. In terms of recent performance, we are able to keep up with market growth, our presence is much more visible and there is a recognition that we are on the front foot in the market. In some areas, there is probably some skilling to be done. We prefer to work with people who can grow and we can develop, and instead of simply replacing people. We prefer to skill and re-skill them. We are also less likely to indulge in sharp practices like many competitors. Some of the aggression you describe, is simply that.
There appear to be old-time investors in some of your oldest schemes, like UTI Mastershare and UTI Mastergain, who still hold old share certificate. Some of them have been bequeathed. What are you doing to track them down?
We are very conscious of that. There are different types of accounts, like where old certificates were converted to dematerialised form or statement of accounts were issued, but the old certificates were not returned. We have actively reached out to customers. We have helped them convert these certificates, whether the holdings are as old as UTI bonds, or other UTI schemes. So, wherever we have details of address, we try to trace them. We also monitor transactions to get updated information on dormant accounts.
We are running analytics, cross-checking data with the know-your-customer (KYC) database.
But we don’t see any advertisements. Can you use your corporate social responsibility (CSR) budget for this?
There is a high risk of organised fraud, the type that targets insurance policyholders and so on; some of them try and target our certificate holders in the same way. Some of it sadly may come from people within our system.
That does not prevent us from dealing with all bonafide cases. It simply means that we need our own fraud prevention mechanisms in place. We are committed to resolving the genuine cases of our old-time investors holding certificates.
What would be the percentage of those with physical unit certificates?
Much less than 5%. Most of it is resolved.
UTI AMC’s proposed initial public offer (IPO) has been in the news for quite some time. UTI AMC has five shareholders—four Indian government-owned entities and T. Rowe Price, the American fund manager. Are all these on board with the IPO plans?
Yes, in principle all our shareholders are in agreement that listing is a good idea. They need to determine how they will construct our offering and how they will participate. And then, the Ministry of Finance needs to approve this.
Is the government approval pending?
Is it possible that one or two shareholders may want to exit completely and the others may want to retain some share?
Yes, it is entirely their call. But eventually they will all need to exit, preferably sooner than later. The Securities and Exchange Board of India (Sebi) does not encourage them being a sponsor to UTI as well as having their own sponsored fund houses; i.e., a firm cannot be a sponsor of more than one fund house.
Would T. Rowe Price also offload its stake?
You should ask the firm. Of course, unlike the other four shareholders, T. Rowe Price is not obliged, regulatory-wise, to offload its stake but will likely take a commercial view of its investment. We have had investment bankers establish the feasibility of listing, potential ranges of valuations, and provide ideas on how the listing may be constructed. That is where the matter lies right now. We want to create value for all our shareholders.
Do you think T. Rowe Price will take this opportunity and increase its stake?
You have to ask T. Rowe Price that question. The management team’s job is to run the institution. T. Rowe Price has played a constructive role. It sits on our board, and has contributed to developing and strengthening our equity, and fixed income processes, products and technology. Of course, as a minority shareholder, it doesn’t have a controlling interest of any kind.
Has this been discussed?
Not to my knowledge. And if it has been, I’d be surprised.
If that was a simple solution, it might have been done already. The likelihood is that UTI AMC will be a widely-held, listed entity. It needs to emerge as an institution akin to, say, HDFC Ltd, ICICI Bank Ltd, Axis Bank Ltd, where there are foreign and domestic shareholders but it operates under Sebi regulations and the Companies’ Act, as a board governed entity and grow accordingly. And not necessarily to have a controlling shareholder, per se.