We are focused on garnering sticky assets: Reliance Nippon CEO

Nippon Life Insurance and Reliance Capital will continue to remain equal shareholders in the asset management company post listing, he said

We have consciously been moving our asset mix to half debt and half equity as equity assets tend to be cyclical, says Sundeep Sikka, CEO, Reliance Nippon Life Asset Management (AMC). In a conversation with Ashley Coutinho and Samie Modak, Sikka says the AMC is not aggressively competing for market share but is focussed on growth with profitability. Edited excerpts:

Yours is the first AMC to list. How will this impact the mutual fund sector?

This IPO will trigger three big changes in the mutual fund industry. One, it will start a trend of focus on profitability. Second, there will be consolidation in the industry. Lastly, the focus on topline growth will reduce. I think there will be a lot of acquisitions in the mutual fund space. All M&A transactions today are happening as a percentage of assets under management (AUM). After Reliance AMC and one or two more players get listed, all transactions will take place based on profitability like in other industries. Earlier every fund house that was acquired was valued as a percentage of the AUM. But if the AMC is making losses, the acquisition price can’t be based on AUMs.

Can you elaborate on your strategy to grow with profitability?

While there is general euphoria in the sector owing to high inflows, we are more focused on sticky assets. Today, if your average ticket size for a systematic investment plan (SIPs) is much lower than the industry, it is a conscious strategy. When someone does a big SIP, it stops if the market falls, but small-ticket investments continue. Also, we have also de-risked the distribution model. Our maximum sale from a distributor does not exceed 4 per cent. Also, we have consciously been moving our asset mix to half debt and half equity. In 2007-08, equity was 84 per cent. Equity tends to be cyclical.

We have been focusing on growth with profitability. We are also not aggressively competing for market share. In the past four years, our revenues have increased and our blended yield has come down. If you see the last one decade, when equity has done well only for three or four years, our profit in 2007 was Rs 75 crore and in 2017 it was Rs 580 crore. So it depends on how you want to develop your business model. We are very clear we don’t want to go just after scale and size.

How’s the asset management business other than mutual fund helping you?

Nearly 85 per cent of our revenues come from mutual funds. From a long-term point of view, we have a core business and a non-core business. The latter can be an engine of future growth. The offshore funds we are launching are mirror images of our existing funds and therefore we don’t have to spend anything extra. So operating leverage will be high for the non-core business. 

The AMC’s equity performance has not been exceptional in the past year? Your thoughts. 

Our endeavour is to feature among the top-quartile funds but at the same time, we are not aiming to be number one or number two all the time. That is not sustainable. Instead, the focus is on delivering stable, long-term and consistent performance. Besides, we have a large number of investors putting money through SIPs. This is essentially sticky money and these investors won’t be switching funds just because a particular scheme lags in performance for a quarter or two.

How will the shareholding pattern of the AMC change post listing?

Both Nippon Life Insurance and Reliance Capital will continue to remain equal shareholders in the asset management company post listing as per the shareholders' agreement. Nippon Life sees the asset management as a core business and they remain committed to it from a long-term perspective.