Fund houses rush to acquire talent as tightening of compliance rules weighs

New hires demand compensation beyond standard hikes to make up for impact on take-home pay due to the skin-in-the-game norms; seasoned professionals quit in droves

Amid tighter rules for staff in the mutual fund (MF) industry, some fund houses are caught up in a talent acquisition whirlwind, with new hires demanding compensation over and above the standard hikes to make up for the impact on take-home salaries due to skin-in-the-game norms, confirmed senior executives from four fund houses.

In recent years, the Securities and Exchange Board of India (Sebi) has tightened compliance and disclosures on asset management companies (AMCs), along with staff. At the same time, the markets regulator has pushed the industry to bring down the cost of investing. 

Under the skin-in-the-game norms, Sebi mandated last year that a fifth of the salary of senior employees be paid in the form of MF units for the funds they manage. For junior staff and those below the age of 35, this component is fixed at 10 per cent. Some feel that stricter regulations are impacting the personal folios of staff and their accessibility or easiness in liquidating the same.

Moreover, many fund houses have been displeased with the regulatory and compliance burden, leading to higher manpower deployment on the legal front, observed officials quoted earlier.

“Fund houses have had to increase their workforce in recent times. A major part of it has been for compliance like the stewardship code. We will need to see how effective these norms will be, especially ones which forced entities to hire more staff. We will get to know in the next three to four years if it is a compliance burden or is an actual benefit to investors,” said one of the officials.

Independent experts feel the tighter regulations are a bitter pill in the short term, but will improve the governance standards for the industry and help attract more investors.

“The skin-in-the-game norms laid down by Sebi would have resulted in expenses going up for AMCs. Smaller AMCs may face challenges. If you are able to perform well and structure your product in line with what investors expect, that would attract investors to the fund. Every AMC has to adjust to these norms, make provisions, and bring in greater processes to manage them,” said Himanshu Srivastava, senior research analyst at Morningstar.

Legal experts say although profitability may get impacted in the near term, the potential growth in assets could help offset the cost of higher compliance.

“There has been a lot of clean-up in the past few years in how fund houses operate. There have been instances like Franklin Templeton, Axis MF, and other front-running cases. The only way for the regulator to address these issues without micromanaging is to have a strong compliance rubric in place. Compliance requirements have gone up. It is better to have a little more compliance cost than a single instance of investors losing money,” said Kunal Kataria, a lawyer specialising in financial regulatory practice.

With growing investor interest, AMCs have been in expansion mode — from fund launches to expansion into portfolio management services (PMS) businesses. This has not just created demand for qualified executives, but also given senior employees a wider field to shift into.

In the past three years, the total assets under management (AUM) has risen 60 per cent to nearly Rs 40 trillion.

Notwithstanding rapid growth in the industry, there has been an exodus of high-profile fund managers. Some former fund managers said the regulatory burden has been taxing and far too lopsided, compared to alternative investment funds or PMS.

The regulatory tightening for the MF industry is expected to go up a notch, with the Sebi board last month deciding to bring in MF units within the ambit of insider trading.

 “There could be other ways to bring transparency in the MF industry. There are issues on getting the right talent, specifically where the brand is not big. I believe the concept of a star fund manager is fading. It is becoming performance-oriented,” said Joydeep Sen, a corporate trainer and author.

What is driving the talent hunt?

• Need for personnel has gone up for the $40-trillion MF industry
• Exodus of talent
• Surge in asset base
• Entry of new AMCs
• Scores of new scheme launches
• Regulatory and compliance requirements
• Competition for talent from PMS, AIF industry