HSBC AMC winds up India-focused fund

Was managed by star manager Sanjiv Duggal

HSBC Global Asset Management is winding up an India-focused hedge fund, run by high-profile money manager Sanjiv Duggal, leaving ardent followers wondering whether he has lost his Midas touch. The fund, India Alpha,   launched in 2007, is closing due to outflows, said a Reuters report.

In 2008, the fund had assets under management (AUM) of $300 million. By November, it has declined to $80 million. The India Alpha fund returned 26 per cent in 2012, compared with an average 7.3 per cent gain by peers.

The decline in the fund’s AUM, despite it outperforming the benchmark in 2012, has raised doubts whether investors have lost confidence in Duggal’s style of portfolio management. Fund management industry peers describe Duggal’s investment portfolio as ‘high-beta’, which usually outperforms the market in a bullish phase and falls sharper during declines. The returns of HSBC’s flagship $3.8-billion GIF Indian Equity fund, the second largest India-dedicated fund, in the last five years, reflect this investment strategy. (See table).

Singapore-based Duggal, who manages $6 billion of AUM, has drawn flak in recent years as assets of the GIF Indian Equity fund declined sharply. Its nearest competitor Aberdeen’s Indian Equity fund has gained at its expense. Speculation about Duggal quiting HSBC in 2012 had also accelerated the flows from the GIF fund, brokers said.

Duggal, born in England, completed a chartered accountancy degree in London in 1988. After beginning his career as an internal auditor at Lloyds TSB Group, Duggal moved to the firm’s portfolio management division in 1994. Two years later, he joined HSBC’s emerging markets team before moving to Mumbai as chief investment officer managing Indian stocks. Duggal moved to Singapore in 2006 as the investment director of Halbis, a unit of HSBC.

Duggal, who shuns the Indian media and prefers speaking to the foreign press, shot to fame during his stint in India which coincided with the bull-run of 2003 to 2007. While   aggressive bets helped his portfolios beat rivals and the benchmark comfortably, the investor and broker community had taken notice of his bearish call on the market in mid-2006.

While GIF Indian Equity fund fell sharper than its benchmark during the peak of the financial crisis in 2008, the product outperformed significantly in 2009 when the markets rebounded. Brokers said the superior performance was driven by his ‘outsized bets’ on shares of property developers,   battered in the 2008 sell-off.

But, the outperformance was short-lived after the GIF fund’s returns lagged the benchmark again in 2010 and 2011. Fund management industry officials said Duggal attempted to repeat the contrarian call by betting big on infrastructure stocks, which were beaten down.

“Infrastructure stocks did not recover like real estate stocks because the focus in 2010 and 2011 was on FMCG and pharma. Nobody was in a mood to bet on infrastructure because the sector was in bad shape,” said a senior fund manager with a top mutual fund.

Some of HSBC Investment Fund’s large bets in India include IVRCL, TBZ, Gammon Infra and Indiabulls Real Estate, among others.