The departure of Prashant Jain from HDFC Mutual Fund last month after a 19-year stint has kicked off conversation about the fading away of star fund managers.
Proponents of this theory say today’s fund managers are the typical backroom boys who can’t be considered “star material” in the conventional sense, and it doesn’t matter that several of them manage funds that have sizeable assets.
Even globally, they say, many large funds are not run by star fund managers. The chief executive of a large fund house, in a recent interview, batted for a faceless, process-driven organisation instead of one driven by an individual or “star” manager.
“Fund houses have become more process-driven and are more reluctant to give fund managers a free rein,” says Dhaval Kapadia, director, portfolio specialist, Morningstar Investment Advisers India. “Asset managers have seen various cycles and their processes have evolved as well. The aim is to make performance sustainable over longer periods of time.”
Even the distribution fraternity recognises this. A mid-sized fund house, for instance, has seen decent flows into its equity schemes despite the churn in its investment team over the years, says Kapadia, to buttress his point.
Naysayers, however, say that the era of star fund managers is far from over. The notion of what makes a star fund manager, however, is likely to change.
“I don’t think the era of star fund managers will come to an end. There are always opportunities for a good person. The pitch will change, the game’s rules will change but the good guy will always make an impression. As cricket has evolved from the boring test match to competitive T20, the same holds true for the MF industry,” said Nilesh Shah, managing director of Kotak Mahindra AMC and a former star fund manager.
While there is no standard definition, star fund managers are often identified with consistent performance and a somewhat contrarian style of investment. Such managers also have the ability to emotionally connect with investors, according to Vicky Mehta, an independent analyst who tracks mutual funds. That has been true for veteran fund managers such as Prashant Jain, Samir Arora and Sunil Singhania. Jain, for example, was criticised in the last five years for his performance, yet investors kept the faith, which is why his funds did not see large outflows even in the worst of times.
Today’s fund managers manage far more money than what the previous generation’s fund managers did. Markets have become more efficient and are far more integrated to global markets. Outperforming benchmarks has become harder. “In the 90s, someone in Mumbai was 10 days ahead of somebody in Saharanpur or Rajkot. Now, they are not even a second ahead. The age of information arbitrage is over. Managing a `50 crore fund versus a `5,000 crore fund versus a `50,000 crore is a totally different ball game and requires altogether different skill sets,” Shah said.
Shah started his career with a fund house that employed two equity fund managers and one debt manager. Today, it is not uncommon to see fund houses with a 30-50 member team. From a handful of fund houses in the 90s, the number has swelled to 44 today.
“The stars of yesteryears managed fewer schemes and assets. If you delivered, you stood out,” Mehta said. “Another change is accessibility. Fund managers in the 90s and early noughties had an aura of exclusivity about them. That is missing in an era of social media and 24X7 business channels.”
A fund manager’s flexibility for risk-taking has been curtailed over the years. The regulator introduced its diktat on categorisation of funds in 2017 that has made style drift difficult. “Risk management has become an integral part of fund management and fund houses are setting tighter boundaries internally. The scrutiny on fund managers has increased as mutual funds have become a more mainstream asset class and fund sizes have increased,” said a seasoned fund manager on condition of anonymity. Are funds more process-driven than in the past? Yes, says Mehta. But in no way does that diminish the importance of the good fund managers, he quickly adds. “Fund companies want you to believe that narrative. If indeed it was all about processes, quant and algo-driven strategies would be the top performers. Investment processes do not come from Mars; the very same managers contribute to them.”