Fund over fund manager

Some days ago after Outlook Business came out with their issue on India’s Best Fund Managers it featured a galaxy of fund managers and had their insights and views on investing. The interest of such an edition in the investing community is palpable, given the traffic that this edition managed on the various social streams. It also opened up discussions among investors and mutual fund distributors. A distributor fund called up and did not hide his irritation about not finding the fund managers’, whose funds he has been recommending to his clients featured on the list, causing him agony on addressing their concerns.

The mutual fund industry has been growing at a rapid pace over the past few years and the swelling of assets managed reflects that. The stock markets have also been on the rise, taking with it the non-performers or mediocre performing mutual funds also to look better on the performance matrix. So, is the role of the fund manager that important? Several mutual fund CEOs whom I have spoken to in the past and in recent times would always mention the difference made by fund managers, but stress about the fund’s internal processes and risk control measures that actually drive the fund’s performance.

I had friends who worked as analysts and researchers in AMCs before managing funds on their own, so I do have a clue of how things work inside the fund management teams. One thing stands out that a fund manager’s experience counts, which makes them important. The other factor that is now public is the remuneration of the CIOs and fund managers, which also reflects the kind of money they are paid to deliver. To be fair, fund managers have a role to play, but solely attributing a fund’s performance success or even failure solely to them would be undermining the role of other team members.

Rolling returns

When you look up the past history of fund managers, you will be able to bucket them under two heads – those who stay for a long period with an AMC and those who move around. The reasons for both could be personal and professional and I would not like to tread into that area. However, when you dig deeper, you will find some of those moving fund managers to be also those who have not managed to live up to their names or their claim to fame. At the same time, some of these fund managers are good to manage funds with a limited size and flounder the moment the fund’s assets go above a threshold. 

For most investors, the fund’s history and performance track record over market cycles should be more important than looking at the fund manager credentials. First, an AMC would have done the necessary check on the fund manager before getting them to the role of managing assets. After all, an AMC knows how important it is to have performing funds in its bouquet than have duds, which would anyway not only draw out investors, but also make it difficult to attract talented fund management teams to stay.

Unlike investing in a company or stock, where the CEO’s role also matters, when investing in a mutual fund, the fund manager alone does not matter so much for one to invest in it. ITC under Y C Deveshwar or Kotak Mahindra Bank under Uday Kotak is far bigger a draw for investors than fund managers (not taking names deliberately) who are associated with AMCs and are more likely to have been heard of. 

olmdesk@outlookindia.com