Morningstar Investment Adviser India, a wholly-owned subsidiary of Morningstar Investment Management, LLC, is winding down its investment management operations in India by the second quarter of this year, according to people in the know. This is essentially the firm’s portfolio management services (PMS), which was introduced in India in April 2019. Morningstar was hoping to garner assets of over Rs 1,000 crore within three years at the time of the launch, but managed to mop up less than Rs 100 crore in the said period, said a person in the know.
The PMS offered four model portfolios that invested in mutual fund schemes with exposure to multi-asset classes such as domestic equity, fixed income, cash, international equity and gold. Morningstar used data, global research and face-to-face interviews to find fund managers who were able to contribute to the goals of each portfolio. The universe of portfolio holdings included direct plans of active and passively-managed mutual funds in India.“To begin with, fund of funds aren’t popular in India.
To do well in that segment, you had to be really good with fund research and the macro-economic front. Sadly, the PMS vertical was found wanting on both counts. The PMS funds were struggling to beat benchmarks that Morningstar had created on its own. That in itself tells a story,” said a person in the know.
According to the person, the internal politics kept the PMS operations running for a while until Morningstar’s global chief decided to pull the plug. “The Morningstar Investment Management group in India has made the difficult decision to close its India investment management operations.
Morningstar will continue to focus on those opportunities that can have a meaningful impact on empowering investor success. Morningstar will continue to provide the independent data, research, ratings and platforms that have earned Morningstar’s strong reputation for investor advocacy.
No other aspects of Morningstar’s businesses in India are affected,” the company said in an email response.It said the decision would result in a potential reduction of up to seven employees within Morningstar India’s investment management group. “We are working to offer opportunities for many of them to choose to stay part of Morningstar. Affected employees have been notified and will be provided with severance and outplacement support. No other Morningstar businesses, markets or employees are affected,” the firm said.
While relatively small in number, all the managed portfolio clients have been notified and a transition plan is in place. “Morningstar’s Investment Management group in India is committed to a smooth transition and to caring for our clients as we wind down this offering,” the fund tracker said.
The firm did not disclose the number of clients or its performance since inception. In 2018-19, a number of wealthy individuals migrated from mutual funds to PMS in search of alpha. Many of the PMS schemes, barring the top performing ones, have not delivered alpha. The minimum investment that regulations allow under PMS was doubled to Rs 50 lakh from January 2020.