Don’t worry about fund manager’s exit

Fund houses are now adopting a process-driven approach and also appointing co-fund managers so that exits do not hurt a scheme’s performance

The churn at top fund managers appears to have resumed once again within the mutual fund industry. In the past 15 days, Tata Mutual Fund Chief Investment Officer (CIO) Gopal Agrawal has quit his job, while DSP BlackRock's CIO-Equity Anup Maheshwari too is said to be on his way out. Whether it is for better opportunities, to pursue entrepreneurial ventures, or to escape the high pressure of the job, the turnover of fund managers seems to be rising in tandem with the growing assets of the industry. In the past one year, there have been several high-profile exits, such as those of Manish Gunwani from ICICI Prudential Mutual Fund and S Naganath from DSP BlackRock Investment.

Each CIO or fund manager brings his own style and influence to bear on the funds managed by him. Can such exits dent the performance of those funds, in turn affecting investors’ returns? Analysts and wealth managers don’t think so. “Most bigger fund houses are now process-driven. Star fund managers’ exits affecting schemes is slowly becoming a thing of the past,” says Kaustubh Belapurkar, director, fund research, Morningstar Investment Adviser.

Experts cite the example of Kenneth Andrade, who quit IDFC Asset Management Company in 2015. He was the head of investments at the fund house and was responsible for making IDFC Premier Equity into one of the most sought-after mid-cap funds under his stewardship. Many investment advisors thought Andrade’s exit posed a risk to the scheme he was managing as well as the fund house’s performance. But there hasn’t been much of an impact if you look at three-year performance, with Anoop Bhaskar replacing him smoothly in both the roles.

While fund managers and CIOs have their influence on schemes, fund management is now also becoming a team effort. A large research team backs star fund managers. With assets under management (AUM) of fund houses growing, many have started appointing two fund managers in their bigger schemes. Not only does this ease the task of managing these behemoths, it also puts a successor in place in case the primary fund manager quits. Experts point to the exit of Gunwani from ICICI Prudential Mutual Fund as an example. “The transition was smooth as the fund house had a team in place that could take over the funds Gunwani managed and continue to run them successfully,” says Malhar Majumder, partner, Positive Vibes Consulting and Advisory.

Majumder, however, says that investors need to be cautious if there are frequent changes in management, as has happened in the case of Tata Mutual Fund, where the CIO and the chief executive officer changed in the recent past. Investors also need to keep a tab on the fund’s performance and see if an exit has had any influence on returns. Besides performance, the investor needs to look at what the new fund manager is doing in the scheme by referring to the fact sheet. He needs to check out which stocks are replaced, whether the new manager is adding more large-caps or mid-caps than earlier, whether the fund's turnover has risen, and if the stock picking investment style has changed from value to growth or vice versa. The new fund manager must be given at least two quarters to stabilise the fund and then evaluate his performance.

Many also believe after the introduction of the Securities and Exchange Board of India’s new norms on fund reclassification, fund houses need to become more process-oriented. They say it will become harder for fund managers to beat their benchmarks after the introduction of these norms, and with schemes’ performance benchmarked against the total return index.