Small fund houses struggle to stay afloat

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SummaryIt was another bleak year for the small fund houses, with most of them continuing to report losses in financial year 2013.

It was another bleak year for the small fund houses, with most of them continuing to report losses in financial year 2013. An analysis of 10 of the bottom-ranked AMCs in terms of the assets they manage shows that consolidated net losses widened to R115 crore in FY13 from R85 crore last year, with six of these fund houses posting losses. In contrast, the top 10 fund houses (excluding Franklin Templeton MF) posted a consolidated profitability growth of about 6% in FY13, with seven out of these nine fund house posting a double-digit growth.

“A lot of the smaller funds still posted losses but at least some of them managed to break even this year. In general, the fund houses have been able to control their expenses better this year,” said Dhruva Chatterji, senior investment consultant, Morningstar India.

Pramerica Asset Managers posted a loss R67.1 crore in FY13, the highest net loss figure among the fund houses. It reportedly took a hit of about R48 crore from its investment in the commercial papers of Deccan Chronicle, which defaulted on its payment. Pramerica chose to take the loss on its books instead of passing it on to the investors. In FY12, Pramerica had posted a loss of R27.1 crore. “Apart from our regulatory filings, we do not disclose or otherwise comment on the financial results of our business,” a Pramerica spokesperson said.

ING Investment Management and BOI AXA AMC also posted sizeable net losses of R28.7 crore and R24.15 crore, respectively. ING saw its revenues decline 35% to R37 crore in FY13 from R57 crore in the previous year. An email sent to ING AMC remained unanswered at the time of going to press. BOI Axa's assets rose by about R950 crore in FY13, the most among the small AMCs, but the fund house failed to see any significant rise in its revenues despite the asset growth.

Quantum MF, which was the only small fund house to end in the black in FY12, continued to remain profitable in FY13. “Both our assets and folios have grown, which has added to our management fees. We remain focussed on the equity segment, unlike many of the other smaller fund houses which are skewed towards garnering fixed income assets,” said Jimmy Patel, CEO, Quantum MF. Quantum MF's profit rose 30% to R4.29 crore from R3.29 crore in FY12.

Motilal Oswal also seemed to have benefited from its focus on the equity segment. The firm turned profitable in FY13 with a net profit of R5.2 crore compared with a loss of R3.09 crore in FY12, with its revenues growing by R3 crore and expenses shrinking by R3.4 crore. “We have not distracted ourselves by doing too many things and remain focussed on equity products, which has been our core strength,” said Aashish Somaiyaa, CEO, Motilal Oswal AMC. The AMC's assets grew by about R170 crore in FY13, the bulk of it in the equity segment.

Mirae Asset swung to a profit of R1.1 crore in FY13 from a loss of R3.8 crore the previous fiscal, chiefly on the back of reduced expenses and cost-cutting measures. Daiwa AMC, which decided to sell its assets to SBI Funds Management, also ended in the black with a net profit of R0.05 crore against a loss of R2.65 crore in FY12.

Experts believe that tough times are likely to continue for small AMCs in FY14 as well.

“Over the past year or so, the bigger AMCs have grown bigger and cornered the bulk of fresh inflows. It will be difficult for the smaller AMCs, which don't have an established distribution channel, to differentiate themselves in an industry which seems a bit over-crowded at present,” said Chatterji.

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