Franklin Templeton shifted part of the blame for the recent winding down of six of its debt mutual funds on to capital markets regulator Securities and Exchange Board of India. SEBI’s decision earlier last year to not let funds invest more than 10% in unlisted instruments “orphaned” one-third of Franklin Templeton funds, Jennifer Johnson said in her first conference call as President and CEO. SEBI’s move barring funds from trading their unlisted instruments was among the key reasons that led to Franklin Templeton eventually winding up six of its debt mutual fund schemes, she said.
“… the high-yield market is still very immature there. So we’ve had a large fund – it’s actually six funds that were invested with a lot of this kind of private debt. And in October of 2019, unfortunately, SEBI came out with new guidelines saying that any investments in unlisted instruments you can’t have more than 10% in a fund, and you can’t trade them. So that orphaned about one-third of our fund there,” Jennifer Jhonson said. She added that anything below AAA-rated is considered non-investment grade in India.
Franklin Templeton entered the Indian market more than two decades ago. The closure of its six debt mutual fund schemes earlier last month sent warning signals across the industry resulting in panic redemption at various other fund houses as well. The funds closed by Franklin Templeton invested in high-risk and high-yield category papers, an option that is risky under the current situation owing to the heightened risk aversion.
Jennifer Jhonson added that Franklin Templeton was able to stem the decline in the fund’s assets under management, which fell to $4 billion from $7 billion, as the fund house worked to manage laddering maturities, diversifying sectors and diversifying ownership. “But it just got to the point with the pandemic, where essentially the market froze up and you had increasing redemptions. There were a couple of defaults there in India. And things like Vodafone ended up in default because the Supreme Court ruled against them. And so that created a bit of a run on the funds,” she added. Jhonson seconded the view of Franklin’s Indian leadership claiming that the decision to wound up six funds was the only decision left to save investors money while reiterating that the underlying holdings in the funds are good which makes it not a solvency issue.
Matthew Nicholls, Executive VP and CF, Franklin Templeton added to the comments of Jennifer Johnson saying that the fund house is dedicated to returning money to their investors. “We’re doing everything we can for those shareholders, to make sure they get all their money back. That’s what the strategy is. It’s all about maximizing proceeds to the investors in the fund. And this is the strategy that made the most sense to do that. And as part of that, we’ve – we’re not charging any fees on those funds anymore,” Matthew Nicholls added.