Processes are complementing role of managers in Mutual Funds

Fund houses seen moving towards a more process-driven investment approach but managers remain key

Domestic fund houses have been moving towards a more process-driven investment approach as a safeguard against abrupt exits of fund managers. 

The processes are typically pre-programmed strategies and stock filters that help fund managers in taking a disciplined approach in creating portfolios of stocks.

In recent years, there have been several high-profile exits of fund managers. Despite the exits, the performance of schemes of these fund managers hasn't seen any adverse impact. Rather, in some cases, the performance has improved, helping allay fears that an exit of a big fund manager is bad for the fund's performance. It has also raised questions whether a process-driven approach has made fund managers redundant. Industry executives say that processes are important but fund managers can't be done away with. Processes and fund managers are complementary to each other, they add.

Sundeep Sikka, executive director and chief executive officer (CEO) of Reliance Nippon Mutual Fund, says: "Fund management is a combination of science and art wherein both processes and people play an important role. Processes are more important than people, as with right processes and right people long-term performance can be achieved over the long run. However, between the two it's paramount that processes are set first and people work towards them."

There have been instances when a fund manager's choice of stocks or strong conviction has clashed with the built-in investment processes.

According to Nimesh Shah, CEO and managing director of ICICI Prudential Mutual Fund: "It is never a question of one over the other. Rather, it is a combination of best processes that are closely aligned to investment beliefs and nurturing the best talent to manage these processes. It is needless to say that fund managers are involved in improving processes for generating benchmark-beating returns."

Anup Maheshwari, executive vice-president and head (equities) at DSP BlackRock Mutual Fund, says that the role of a fund manager cannot be undermined. According to him, a process alone doesn't guarantee consistent performance. He says: "While processes are at the heart of our stock selection approach, the manager is the decision maker in terms of weights of stocks and sector allocations. It would be naive to assume that a fund can run without a manager. The question is more of the level of disruption that a fund manager exit can create, and this is where a strong investment process and team becomes critical to minimise the impact on the fund." 

A Balasubramanian, CEO of Aditya Birla Sun Life Mutual Fund, agrees. He says, "Processes can in no way replace the genius and insight of a fund manager. The individual fund manager's capability will remain the core for success; however, systems and processes help money managers take informed and timely decisions for an optimal output."