The longest serving fund manager in the country’s mutual fund industry finally bowed out last week. HDFC AMC announced that Prashant Jain was stepping down from his duties as CIO and fund manager of its flagship schemes. This ushered in a new dawn and a period of transition for the fabled fund house. What does this mean for its funds and existing investors?
Change of guard & approach
Jain’s unwavering conviction in his ideas was his most storied trait. He wore it like a badge of honour but at times it also became a millstone around his neck. While he finally left on a reasonably strong footing, some of his big contrarian bets did not yield expected payoffs for years on end. The approach asked for zen-like patience from investors and advisers alike. Yet, many continued to put faith in his abilities. It was his reputation and experience that allowed him that freedom and ability to dig in his heels. Experts feel this extent of goodwill will not pass onto the incoming fund managers.
Roopali Prabhu, CIO and Co-Head of Products & Solutions, Sanctum Wealth, says, “Jain showed a lot of mettle in the face of pressure but the system always backed him and made it possible for him to do that. Anybody else who is not that senior may not withstand similar pressures.” The HDFC brand played its part in ring-fencing the funds from mass exodus. If anybody else underperformed for so long, investors would have packed up and left. “The incoming fund managers will have to be more mindful of market realities,” says Amol Joshi, Founder, PlanRupee Investment Services.
Anish Teli, Founder, QED Capital Advisors, asserts, “It is good to have conviction. But even the biggest names in the investing world have shown willingness to adapt their styles depending on where the winds are blowing. The clearest signal global markets have sent so far is that the process is the star.” If investing strategies are not realigned to reflect market realities, playing catchup becomes difficult later. When external dynamics are changing fast, it is critical to continuously revisit and rework investing thesis, says Vidya Bala, Head – Research, Primeinvestor.in.
Going forward, it is expected that the fund house will shift to a deeper process-driven approach. “Now the size of the funds has also grown a lot bigger and cannot be run on individual whims. This freedom will give way to stronger processes and frameworks at the fund house,” reckons Santosh Joseph, Founder and Managing Partner, Germinate Investor Services. But even as the fund house is expected to shed some of its old ways, it is necessary that incoming fund managers imbibe some values Jain practised, experts maintain.
RINGING IN THE NEW
Flagship funds earlier run by veteran fund manager Prashant Jain will now be helmed by others.
Ushering style diversity
In many ways, HDFC AMC has already set this transition in motion over the past few years. The change has not happened overnight. Under the stewardship of new CEO Navneet Munot, the fund house has been roping in several new fund managers to bolster its investment team. Some of these are established names like Gopal Agrawal, Roshi Jain and Rahul Baijal. Responsibilities for Jain’s managed funds will be farmed out to this set of fund managers.
Apart from boasting proven credentials, these fund managers also bring distinct strengths. Agrawal is known for his ability to read macros, Roshi Jain for her value-centric approach and Baijal for his capabilities in the large-cap space. The entire equity team will now be overseen by long-serving fund manager Chirag Setalvad, who himself brings strong capabilities in the mid- and small- cap segments and adopts a refined blend of growth and value styles. It is the clearest indication that the fund house has been laying the ground for more style diversification in its suite of products. Bala asserts, “HDFC AMC has realised the need of the hour and it is evident in how it has gone about hiring people.” Joseph observes, “It has been a gradual, well calculated plan to remove overdependence on one person and countered by adding specialists across the investing spectrum.”
Uncharted waters
Yet, this eclectic new look is not likely to be smooth sailing. Unlike earlier, the AMC’s funds are likely to take distinct paths. New CIO Setalvad will let fund managers play to their individual strengths, industry insiders say. Many of the AMC’s funds have already started on that path, recalibrating portfolios slowly based on the new manager’s style. But this will take time and outcomes will vary. “Distinct strategies will help as long as it is clearly spelt out to the investors. Otherwise it will get confusing,” insists Bala. Meanwhile, investors should watch out for some drift in style. “Cultural integration is a gradual process. There is bound to be some style drift which can impact return,” argues Prabhu. It also remains to be seen how Setalvad adapts to his bigger leadership role without losing focus on funds he manages.
What should investors do?
There is no reason for investors to panic. “This is not the first time that a star fund manager is handing over the baton. AMCs have pulled off such transitions in the past,” says Joshi. Fund houses like DSP and Nippon India also went through a period of turmoil but new fund managers have come in and done a good job. “Investors can take comfort in knowing that the brand has thought this through and the basic ingredients of investing hygiene and competence are in place,” insists Joseph. It is perhaps time investors give more weight to fully understand the underlying investing values rather than subscribe to the cult of a star fund manager.
