Don't fret over fund manager' exit, star appeal is fast becoming irrelevant

Fund houses are adopting the process-driven approach and appointing co-managers to avoid fund getting impacted in case of exits.

In the past 15 days, two well-known chief investment officers (CIO) have quit their jobs. DSP BlackRock's Anup Maheshwari and Tata Mutual Fund’s Gopal Agrawal are leaving the fund houses. It may be for better opportunities or due to high pressure, but as the assets of the mutual fund industry grow the movement of fund managers is also on the rise. In the past one year, there have been a few high profile exits including Manish Gunwani ‘s from ICICI Prudential Mutual Fund and S Naganath’s from DSP BlackRock Investment.

Each fund manager or CIO brings his influence on the funds under them. Can such exits dent performance of the fund, in turn hampering returns of investors? Analysts and wealth managers don’t think so. “Most bigger fund houses are now process driven. Star fund manager’s exit impacting the scheme is slowly becoming a thing of the past,” says Kaustubh Belapurkar, director, fund research, Morningstar Investment Adviser.

Most experts give an example of Kenneth Andrade who quit IDFC Asset Management Company in 2015. He was the head of investments and managed IDFC Premier Equity. Many investment advisors thought that Andrade’s exit poses a risk to the scheme as well as fund house’s performance. But there hasn’t been much impact if you look at three-year performance after Anoop Bhaskar replaced him in both the roles. 

While fund managers and CIOs have their influence on the schemes, it’s the entire team that they work with matters. The research team backs them. As the assets under management of the fund houses have grown, many have started appointing two fund managers for large schemes. While it eases management, it’s also about putting a succession plan in place in case the primary fund manager quits. Experts point the exit of Manish Gunwani from ICICI Prudential Mutual Fund as an example. “The transition was smooth as the fund house has a team in place that could take over the funds Gunwani managed and run them successfully,” says Malhar Majumder, partner, Positive Vibes Consulting and Advisory.

Majumder, however, says that investors need to be cautious if there are frequent changes in the opt management like in case of Tata Mutual Fund where the CIOs and chief executive officers have changed in the past three years. Investors need to keep a tab on the fund’s performance and see if the exits have any influence on the returns. Other than performance, look at what the new fund manager is doing in the scheme by referring to the fact sheet. Watch out for the stocks that are being replaced, whether the new manager is adding more of large-caps or small-caps than before, and if the stock picking investment style is undergoing a change – if it is changing from value to growth or vice versa. Give the new fund manager at least two quarters to stabilise the fund and then evaluate his performance.

Many also believe that with the market regulator’s – Sebi’s – new norms on fund reclassification, fund houses need to be more process-oriented. It has become fund manager to beat the benchmark with the new classification and also now that scheme’s performance has to be compared to the total return index. 

Some Recent Exits

Official: Gopal Agrawal

Fund house: Tata Mutual Fund

Exit: May, 2018

 

Official: Anup Maheshwari

Fund house: DSP BlackRock

Exit: April, 2018

 

Official: Venkateswaran fund manager 

Fund house: LIC Mutual Fund's

Exit: April, 2018

 

Official: Manish Gunwani

Fund house: ICICI Prudential Mutual Fund

Exit: July, 2017

 

Official: S Naganath

Fund house: DSP BlackRock

Exit:  May, 2017