S. Kumar/Mint
S. Kumar/Mint

Distribution of MFs is challenging

Kotak Mahindra AMC's Nilesh Shah's biggest task as its new head is to turn around the fund house's performance. He explains how he will go about doing it

The past 12 months have been particularly significant for the Kotak Mahindra Group. While Kotak Mahindra Bank Ltd acquired ING Vysya Bank Ltd, Kotak Mahindra Asset Management Co. Ltd acquired schemes of a small but strong in performance fund house, PineBridge Investments Asset Management Co. Ltd. Kotak Mahindra Asset Manangement also got a new head in Nilesh Shah. One of his biggest tasks is to turn around the fund house’s performance—something that had already started a couple of years ago—and make it relevant like its larger bank-sponsored peers. In a candid chat, Shah explains how he will go about doing it. We also asked him if Jim Rogers responded to his open letter where he criticized Rogers’ opinion about the Indian economy.

Kotak Mahindra is a big brand, but not yet a significant name in the mutual funds (MF) industry. What is your vision for Kotak Mahindra mutual fund?

We are among the top 10 asset management companies (AMC) in the country that have a good brand. Our assets under management (AUM), as a percentage of our parent’s balance sheet, are higher than those of our larger peers. So, it is unfair to make that comment.

My vision is to make Kotak Mahindra AMC the most trusted fund house in the country. We are in the business of managing our clients’ trust and confidence, and not just their money. We will gain their trust by treating them as our partners, giving them consistent risk-adjusted performance and being available for advice and explanation when they need us. My vision is to get the mind share and heart share of our clients. Eventually, we will gain their pocket share as well.

There is a perception that it is tough for former fund managers to let go of their expertise in fund management and transition fully to playing the role of a chief executive officer (CEO). Do you expect to face a similar problem?

Mutual funds is a team game. The captain alone cannot win the match. A mutual fund is also like an opera; all the players have to play in unison. At Kotak MF, we have a disciplined investment process, which defines roles and responsibilities of the fund managers.

I am fortunate to have Harsha Upadhyaya, Lakshmi Iyer and Anshul Saigal as chiefs of equity, debt and vice president of portfolio management services, respectively, and to oversee a team of talented fund managers. If my fund managers come to me, I will be more than happy to share from my experience. If I have a strong view, I will share it. At the end of the day, they have their job to do and I have mine. They have to generate performance and I have to manage the business.

Despite being a large distributor, Kotak Mahindra Bank hasn’t sold the AMC’s schemes as vociferously as some of the other banks that have AMCs as group companies. How will your relationship with the bank move forward?

There is no free lunch. We have to earn our own laurels. No one, including the parent company, is going to distribute my schemes if I don’t perform.

I can approach Kotak Mahindra Bank at any point and discuss ideas with them. I can ask for as much guidance as I need. But at the end of the day, they will be fair to their clients and recommend my funds only on the basis of merit and performance. I draw significant support from the bank in terms of many aspects on investment management—credit view, market view and more. I am part of the extended Kotak family and I have to ensure that I add value to the mother brand.

You have been on the distribution side in your previous tenure as managing director and chief executive officer of Axis Capital. How are you going to use that experience here?

There is disconnect between the work that distributors do and how they are perceived. It is extremely important to see both sides of a coin. I am fortunate to have experienced both sides—as a manufacturer and as a distributor. Today, distribution of mutual funds is a challenging job. The commission is lower compared to selling other competing products such as insurance, gold and real estate.

A mutual fund adviser is like a goal keeper. He is not judged based on how many goals he saved but on how many goals got scored against him. He is questioned for the complaints against him but never complimented for the services rendered. My vision is to work with the distributor fraternity as a partner. They are honouring me by giving me their clients’ money. Every decision of mine has to be to increase that trust.

Having worked in distribution, I understand their pain points. I will ensure that their viewpoint is well represented in the appropriate forums.

We’ll ensure that we service our distributors well so that they can service their clients well. Most distributors need to now understand what’s happening in the market because their customers are demanding and they want to make sense of the market noise. We need to communicate with distributors in their language as and when things happen, so that they can carry the message appropriately back to their investors and handhold them better.

The Association of Mutual Funds of India (Amfi; the MF industry’s trade body) recently issued a ‘best practices’ circular. It spoke of many things—that fund houses should avoid giving perks such as foreign trips, compliance requirements, capped upfront commissions, and so on. Do you think that these are observed by the industry at large?

There are certain fund houses that do not abide with the circular openly. Some abide by it in letter but not in spirit. They have taken steps that go against the spirit of the circular. For example, a few fund houses have paid some distributors money as advance in March—ahead of the circular implementation—to circumvent the upfront cap. We have requested Amfi a couple of times to curb such sharp practices. We have not been successful yet. We have been following Amfi’s best practices in letter and in spirit. I tell my team to build the business the right way. But when we see sharp practices being encouraged and not restricted, they do get demotivated. We will continue to work with like-minded peers to ensure that investor interest is protected as per the intent of the Securities and Exchange Board of India (Sebi).

Kotak Mahindra AMC will follow all rules in letter and in spirit, no matter what others do. Shortcuts don’t work over a longer period of time. We want to be an old-fashioned value-based ethical fund house which people can blindly trust and be comfortable with.

You had written an open letter to Jim Rogers (http://mintne.ws/1GY2y9m )? Did you get any feedback from him?

No I didn’t get money from Jim Rogers (laughs). Neither has he responded.

Our biggest problem is that we Indians don’t market ourselves as much as we should. We are not able to impress upon the global rating agencies that from the days of ancient civilization till date, India has never defaulted to foreigners, and still our credit rating is just above “junk level". Isn’t 5,000 years of history good enough for them to assign a better rating?

I am not able to go to Christine Lagarde, the chief of the International Monetary Fund (IMF), who also came to India recently, and ask her that when India and Southeast Asia were in a crisis in 1991 and 1997, respectively, why were we told to raise interest rates, cut subsidies, cut fiscal deficit, depreciate currency, and bring in foreign direct investment (FDI) as we were short in capital. Of course, all those things helped us and we recovered from our crisis, but the same was not suggested to the US in 2008 when it was hit by the sub-prime crisis, or during the European Union crisis in 2010. In fact, they cut their interest rates, raised deficit, haven’t depreciated currency, are short of labour but not open to immigration, and they don’t want foreign direct investment (FDI) in labour, but only in capital. They haven’t cut their subsidies, so how will they recover from the crisis?

IMF advises us to be careful if and when the US starts to raise its interest rates despite our 10-year yield hovering around 8%. But what about countries like Spain, Portugal, and Italy, where the 10-year yields are lower than that of the US? What advice has she given to them?

Foreign commentators view India from 30,000 feet above or maybe descend here once in a while on fleeting visits, and then they make a profound judgement on us; it just doesn’t make any sense. I wrote that letter to present India’s true picture. We may not be a perfect nation, but we are not as bad as a few people perceive us to be.