PMS benchmarking norms: Industry players seek three-month extension

Cites technological and compliance challenges ahead of April 1 deadline

With less than a month to go for the implementation of the performance benchmarking norms for portfolio management services (PMS), industry players have sought a three-month extension from the capital markets regulator.

Through a circular issued in December, the Securities and Exchange Board of India (Sebi) directed the PMS industry to implement performance benchmarking and categorisation from April 1. The aim is to help investors assess and compare the performance of service providers, akin to the mutual fund industry.

However, portfolio managers are considering asking for an extension by at least a quarter or a glide path approach for adhering to the norms.

The industry body, Association of Portfolio Managers in India (APMI), has received representations from smaller portfolio managers about an extension till June 1 to provide them enough time for the transition, said people in the know.

“Based on risk-reward profile, portfolios can be concentrated or need-based solutions. They can have exposure to limited stocks or be well diversified, depending on the need. The industry will need time to rebalance once the benchmarks are introduced,” said Nupur Patel, principal officer and head, Prabhudas Lilladher PMS.

Sebi has put the onus on the APMI to prescribe a maximum of three benchmarks for each strategy categorised as equity, debt, hybrid, and multi-asset. Portfolio managers will have to tag each strategy to one investment approach and benchmark.

Some smaller PMS managers said they will require a month’s time to do some realignment after they are informed of the available benchmarks. However, no benchmarks have yet been shared by the APMI, though there has been constant consultation with different players.

“Over the last two months, we have tried to capture the various strategies suggested by Sebi. However, for other policy matters, where technological intervention is required, we require more time,” said Anil Rego, founder and fund manager at Right Horizons PMS.

He added there will be additional infrastructure and employee costs along with the expense of putting systems in place.

Experts said that though at present many players mention an investment strategy like multi-cap, thematic, or debt, due to the lack of standardisation and audit, there are instances where underlying holdings and allocations are different.

Further, a change in the approach could also be in the hands of the portfolio manager. Sebi in the circular said portfolio managers will be able to change the tagging only after offering an option to subscribers to leave without any exit load.

Queries sent to the APMI and Sebi remained unanswered.

Among other changes, portfolio managers have also been mandated to submit monthly reports to the APMI and Sebi within seven working days of a month’s end. This goes in line with the practice in the MF industry, where schemes need to disclose their factsheet.

According to Sebi data, as of January 31, there were 134,000 clients for the PMS industry and assets under management amounted to Rs 26.42 trillion.

According to data shared by PMS Bazaar, there are 156 funds in the multi-cap category, 25 in mid-cap, 14 in multi-asset, 7 in debt, and 8 in flexi-cap, among others.