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White Oak Capital group, which was founded in 2017, provides investment management and advisory services for India equity assets of more than $4.5 billion as of 30 June. Besides segregated managed accounts for leading global institutions, White Oak offers investment services through a wide array of fund vehicles domiciled in India, Ireland, Mauritius and the UK to individual and institutional investors in India and abroad. White Oak has investment research teams based in India and Singapore, and additional sales and distribution offices in Switzerland and the UK. Over the past 10 years, the alternative investment fund (AIF) industry’s assets under management (AUM) has grown rapidly to around 2 trillion. Prateek Pant, executive director and chief business officer at White Oak Capital Management, spoke to Mint about the impact of covid-19 on the AIF industry and the top investment themes. Edited excerpts:

Take us through the investment philosophy of White Oak Capital Management.

We have a simple yet powerful philosophy of investing in businesses based on stock selection rather than betting on macro. We believe outsized returns are earned over time by investing in great businesses at attractive values. A great business is one that is well-managed and scalable, with superior returns on incremental capital. Valuation is attractive when the current price is at a substantial discount to the intrinsic value. We are always looking for companies that will deliver to our expectation basis, valuation framework and investing philosophy.

On average, AIFs have lagged Nifty returns over the past few years. Given the decent performance of passive funds, what makes alternative investing a good bet?

India is still one of the most attractive destinations for alpha generation. Over the last 10 years, the AIF industry’s AUM has grown rapidly from almost nowhere to around 2 trillion today. Alternative investments are proving to be a better platform because they are not fettered by mandates, and they have performance potential, pricing options, latitude in managing money and better engagement.

Retail investing has seen a major uptick due to covid-19. What was its impact on the portfolio management services (PMS) or AIF industry?

More and more smart money is getting allocated to PMS, but still, the exposure to PMS remains a satellite strategy rather than a core strategy. Many consider PMS as diversification within their existing asset allocation. With innovations in PMS to offer differentiated products such as allowing systematic investment plans (SIPs) to invest in small and staggered instalments (provided it meets the designated threshold), online schemes will ensure faster growth of AUM for PMS.

Do investors now have to take extra risk for better returns, given that interest rates are low and stock valuations are high?

At White Oak, we don’t take any macro or top-down kind of bets. The idea is to remain fully invested at any point. The base case assumption for us always is that the market should deliver its time value of money in terms of return over any given period.

Mid-cap and small-cap-based strategies have been consistent outperformers during the second wave of the pandemic. What is your outlook for these categories?

We always seek to maintain a balanced portfolio to ensure that portfolio performance is driven by stock selection rather than non-stock-specific risk factors such as market timing, beta, sector or other such factor exposures. We do not make any top-down allocation decisions on sector weights or thematic exposures. The sectoral or factor weights are an outcome of our bottom-up stock selection process. In general, from a market cap perspective, while we invest across the spectrum, we find a greater number of opportunities in the mid-cap segment, which is highly fertile for an alpha generation due to greater inefficiencies that exist in this area. We believe these segments of the market are typically less well-researched and hence more inefficient, thereby providing strong alpha generation potential.

What is your view on the introduction of a framework for accredited investors by Sebi?

This is a move in the right direction, which will help develop the capital markets. Flexibility in investment decisions would allow asset management companies and AIFs to work closely with well-informed investors to create bespoke proposals. They will be free from restrictions imposed for the protection of the retail investor to mitigate risks in the capital market.

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