‘Enough room for active, passive funds to coexist’
MILIND BARVE Managing Director, HDFC Mutual Fund
MILIND BARVE will retire as managing director of HDFC Mutual Fund next week. In an interview to Chirag Madia, Barve — instrumental in setting up one of India’s largest and most-profitable fund houses — shares the key lessons he learnt and the challenges he faced over the past two decades. Edited excerpts: You are retiring when the industry has achieved the milestone of ~30trillion in AUM. How soon do you expect next ~30 trillion to come?
The MF industry is in a far better position today in terms of awareness of products than it was 5-10 years ago. Given the combined efforts of the industry and support of the distribution community, the pace of growth will be faster. I do not want to put a target on number of years.
You have witnessed many ups and downs. Which are the most distinct ones?
When I reflect on the many years in the market, there have been very distinctive phases. In 2000, when we started, debt was more favourable than equity as the 10-year yields were in excess of 10 per cent. Between 2003 and 2008, the equity markets gave outstanding returns. Later, there was a huge slide triggered by the global financial crisis. Another event is the taper tantrum in 2013, which led to heavy turbulence.
The asset management industry has evolved over the last decade. What
are the most striking changes?
There has been significant improvement in standard of disclosures and in every area. We now have a much stronger regulatory framework. All this has made investing in mutual funds safer and more transparent. I would give Sebi a lot of credit for this. The changes in regulations are centred around building investors’ confidence and safeguarding investors’ interest.
What was the most testing phase during your tenure at HDFC MF?
I do not want to remember those phases… but looking back, its was the global financial crisis in 2008-09. Though the crisis did not originate in India, we faced a collateral impact, particularly in the debt markets. It was an extremely difficult time in handling outflows and inflows in liquid funds. Eventually, we came out stronger as an industry and I think we learnt some important lessons, particularly in how liquid funds were managed.
Navigating corporate debt stress has also been a challenge. What are the key lessons there?
After the fall of certain NBFCS, the exposure to this space has come under focus. The market has started differentiating between strong and less strong NBFCS. This has led to differential pricing.
However, with quick measures taken by the regulators and improvement in liquidity conditions, things have changed. The key learning has been that if you are borrowing from NBFCS, the focus should be on the asset quality, but even greater focus should be on the asset-liability mix.
Talking about last year’s crisis (Franklin Templeton), it did create a degree of panic. The industry tried its best to assuage the fear of investors towards credit risk funds. Thanks to Sebi and the RBI, the situation eased. The high redemption pressure, felt in the month of May, ebbed very quickly and now things got back to normal. However, the assets of the credit risk fund did shrink from ~80,000 crore to ~30,000 crore.
Passives are giving active fund managers a tough time. Do you see the active-passive asset mix shifting significantly?
I think both active and passive will remain part of investors’ portfolios. I do not think the rise of passive funds will come at the expense of active investments. Investors will invest in index funds or exchange-traded funds (ETFS), but certain segments like mid-cap and small-cap do not have index funds, as impact costs are high. So, if investors are keen to invest in those sectors they cannot invest through passive funds. There is enough room for both active and passive funds to coexist in India.