Capital Concierges: How PMSes are wooing richie rich investors

A few boutique players pay as much as 3–5 per cent of fresh incoming funds as commission.
Call them your personal money plant. They don’t fuss about the ongoing market meltdown, macro blips or even RBI’s slugfest with the finance ministry. Naturally, smart money is flowing to them since alpha is more than an adjective for these custodians of your wealth

For investors who approach him with mandates, IV Subramaniam has a wellrehearsed pitch. The managing director and chief investment officer of Quantum Advisors whisks out a few slides depicting India’s long-term growth potential, talks stocks and rests his case with a punchline: This market is not good for short-term gains. Stay invested long and you will make money. “This opening has worked well for us,” Subramaniam says.

Quantum manages overRs 14,000 crore across 15 investors and is the third-largest portfolio management service (PMS or ‘portfolio manager’) provider in the country. There are over 280 such registered managers handling close to Rs 15 lakh crore of PMS and advisory mandates – up from over Rs 9 lakh crore in August 2015.

Despite volatile markets —the wider universe of non-Sensex stocks tanked 25-50 per cent in just a year — and a bleak medium-term outlook for equities, these fund houses have managed to shore up bulk assets. Rich clients shovelled more money into bespoke schemes. During January-August, assets under management (AUM) of these wealth managers rose over Rs 86,600 crore to Rs 13.05 lakh crore and their client rosters swelled up to 1.29 lakh from 1.11 lakh.

That the cult of equity investing has become all pervasive can be proved from just one statistic. SIP investments were steady at Rs 7,700 crore every month, underscoring the evergrowing appetite of retail investors to play the equity market with minimum risks. Imagine what India still offers for the sophisticated moneybags. Enter, the PMS seduction.

“Our performance track record has certainly helped us. We mostly cater to overseas investors… mainly institutions,” says Subramaniam. “We tell our investors, we follow only value style of investing. There could be several years of underperformance, but over a longer duration, they will make good returns.”

It’s the same for Chennai-based Unifi Capital, helmed by Sarath Reddy and three other founders. Unifi manages investments worthRs 4,400 crore for 3,400 clients. Its PMS book alone stands atRs 3,800 crore.

Reddy compares the art of investing to sailing, one of his passions. “Sailing rough seas is pretty much like investing in stock markets. Uncertainty is common to both… You need the willingness to accept uncertainty – and it takes practice to accept uncertainty.” During weekends, Reddy hauls anchor and heads out to Chennai bay on his 38-footer yacht,Vincelle of India. Sailing helps him stay alert, he says.

An ardent proponent of long-term investing, Reddy is not hassled by market dips. “We have themes that are well-researched and back-tested. Our filters are designed to capture best companies at right price points. We do our own research; we don’t run after street ideas,” he reassures. Reddy cannot afford to have “street ideas.” He has to come up with newer, and different, strategies often, as his clients are savvy equity investors or wealth managers who vend out investment mandates on behalf of rich investor clients.

“There are several portfolio managers, but very few with adequate research support and superb execution capabilities,” says Prateek Pant, co-founder and head of products, Sanctum Wealth Management, which recommends Unifi portfolios to select clients.

PMS is an investment portfolio comprising equities, debt and structured products aligned to exact high returns. Minimum permissible ticket size isRs 25 lakh, but well-known portfolio managers only accept investments above Rs 50 lakh. The upper limit can be any conceivable amount. (See, How PMS Works) “PMS is under-penetrated, so the market is big enough. But only innovative strategies would find takers,” says Gaurav Dua of Sharekhan, a BNP Paribas subsidiary.

When you invest in PMS, securities (shares, debt papers) are held in individual demat accounts. This is the key differentiator between PMS and mutual funds. MF investors merely own fractional units of the fund.

“People think PMS are more expensive than MFs, but that’s not true. If your investment corpus is large, PMS could be a lot cheaper than MFs,” contends Aashish Somaiyaa, chief executive, Motilal Oswal AMC, the largest portfolio manager in terms of assets and number of clients. “MFs witness excessive money flow, in and out. This determines the structure of portfolios. Often, investor behaviour impacts fund performance. PMS are individually held and insulated from actions of others,” he explains.

Above all, managers get flexibility as, unlike MFs, PMS are not bound by Sebi portfolio rules, which decree per-stock exposure limits or fund segregation on basis of market cap.

“If you look at the return pattern between PMS and MFs in the short-term, you may not see much of a variance. But if you take a longer time horizon – say 10 years – PMS would certainly beat MFs significantly,” affirms Somaiyaa.

Some portfolio managers feel rich investors are moving out of MFs because of the tidal inflows of “small retail money” (into MFs) over the past three years. This is because the moneybags are no longer getting the desired alpha (active return on an investment vis-à-vis a benchmark), as a result of MFs bloated (and unwieldy) with huge retail inflow. “I started relying on PMS schemes because I did not have time to monitor daily markets. PMS should only be a part of overall investment allocation. You may put 35 per cent of savings in PMS,” says Ramesh Chandak, founder, RDC Business Advisors, who has been a PMS investor for over 15 years. “They give you the benefit of holding a concentrated portfolio. Over a longer time frame, PMS yield handsome returns.”

A PMS investor’s tax liability would be the same as that of a direct investor in capital markets. This is where MFs score over PMS. But many portfolio managers whomET consulted say they don’t churn portfolios too often. Their buy-and-hold strategies keep tax liabilities low, they say.

“PMS are getting funds because of increasing ‘financialisation’ of investments. Not many people are investing in real assets anymore,” says Miten Mehta, cofounder, Bellwether Capital, managing portfolio assets worth Rs 1,200 crore.

“Money is coming to equities and it has lifted us all. Lower interest rates and a real estate slump have also helped,” chips in Ranjit Dongre, Mehta’s partner. “But it is still difficult to find quality investors aligned to portfolio managers’ thinking.”


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Loknath Das

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