Chance to create a legacy seemed irresistible, says Leo Puri
The appointment of Leo Puri as the head of UTI Mutual Fund five years ago had surprised many. Because Puri, a McKinsey veteran and former managing director of Warburg Pincus, was taking over a private institution steeped in ‘sarkari’ culture and majorityowned by the government. And, also because the institution was headless for over two years and discontent was brewing among shareholders, pitting four government sponsors — State Bank of India (SBI), Life Insurance Corporation of India (LIC), Bank of Baroda and Punjab National Bank with a collective stake of 74 per cent — against T Rowe Price, a $6-trillion global investment manager and UTI’s singlebiggest shareholder.
Puri, who finishes his five-year term at UTI on Monday, says the assignment was an opportunity to transform a public institution that was undermanaged and underutilised. “I could have taken up simpler assignments, but the element of public service and the chance to create a legacy seemed irresistible,” Puri, who was in his 50s when he joined UTI, says.
One way to build this legacy was to get shareholders, trustees and the government on the same page on the asset management company’s (AMC’s) growth plans. This was one of Puri’s topmost priorities when he joined, but is also an area where he seems to have failed the most. “I would like to give myself high marks for the effort, if nothing else. Traditionally, UTI has had a bureaucrat at the helm. When I joined, there was an element of unresolved resentment because there was a feeling among the public shareholders that they had been pushed aside.”
An initial public offering, first mooted in 2008, seemed like the right way to align shareholder interest, says Puri. This way, all shareholders get to dilute their stakes, T Rowe Price gives up its rights, the government looks good and you get an Indian institution that could be a role model in terms of governance, he says. “It was the obvious thing to do and it was the only thing to do.”
That’s not to say other solutions were not proposed. Both SBI India and LIC, for instance, had reportedly expressed interest in buying out the AMC. “There were competing proposals and I had no issues with that as long as the matter was adjudicated and resolved. If someone wanted to buy out the other shareholders, they should have done so. Instead, an attempt was made to create a deadlock,” says Puri, adding that a buyout would not have been consistent with the government’s reforms agenda.
Despite his failure to resolve the shareholder conflict, Puri seems to have fared better in fulfilling his other mandate: to bring in stability, rebuild the leadership and boost employee morale.
“There was discontent simmering among the earlier generation of UTI employees. And, one of the things that makes me proud is seeing those who had been underutilised or forgotten use their years of experience in a frontline role.” UTI is among the most overstaffed asset managers and has a workmen’s union.
Sources say Puri had tried to rein in the union once he took over but backed off eventually. Instead, he sought to drive in a culture of meritocracy and roped in fresh talent, especially in sales and alternative investment divisions. A key achievement was to bring in Vetri Subramaniam as head of equities after star fund manager Anoop Bhaskar left for IDFC MF in 2016. This helped to stem the slide in the fund’s equity performance and arrest redemption pressure.
“Our flagship funds were very defensive and we lost out when the mid-caps started rallying in 2014. We have now created a diversity of style and about 70 per cent of our funds are back in the top 1 and 2 quartiles over a 12-month period,” says Puri. Minimal interference from the government helped. “We have never felt any pressure to take certain decisions. In fact, we have said no to several PSU disinvestments,” said Puri.
UTI MF’s equity assets have grown 121 per cent in the past four financial years, lower than the 211 per cent growth clocked by the top five fund houses. The AMC has also slipped out of the top five as measured by overall assets. The AMC’s performance has been one of the sore points, especially with the public shareholders.
Another criticism from industry players is that Puri did not spend enough time on the road building relationships with distributors.
“The performance thing is a ruse. We are an AMC, not a MF alone. People keep forgetting that because it suits them to pigeonhole us differently,” says Puri. While the firm has lost market share, Puri says the AMC was the fourth most profitable fund house in FY18 and has done as well, if not better, than other top non-bank sponsored AMCs.
“We need a strategic bank partner for distribution. I have three banks as my owners. So, theoretically, I should not have a problem. But, in reality, I haven’t got their backing,” says Puri.
The AMC clocked a net profit of ~3.7 billion for 2017-18 compared with ~1.7 billion for 2013-14. The consolidated profit for the group grew to ~4.01 billion in FY18 from ~1.77 billion in FY14.
The infighting among shareholders became acute after the Securities and Exchange Board of India came up with a circular in December, limiting crossholding in MFs to up to 10 per cent. “Suddenly, the whole world changes, the power battle accentuates and the first chip in a power battle is to see who gets to appoint a CEO,” says Puri.
T Rowe Price recently filed a writ petition before the Bombay High Court, requesting Puri’s extension and highlighting the deterioration of corporate governance standards at the AMC.
Puri, however, seems to have bid adieu. “I’m not going to remain as a negotiating chip; it is beneath my selfrespect,” he says. “I have felt genuine affection for the place (UTI) and am proud of what we’ve managed to achieve together. I’d like to believe that the changes I have initiated are fundamental and irreversible, and that’s a legacy that I would most want to protect — even if I’m not around to see the fruits of that.”