Give the fund house some time

When a star fund manager leaves or the management of a fund house changes hands, wait for a couple of quarters before taking a decision to quit or stay

With reports suggesting Pramerica Mutual Fund is all set to take over Deutsche Asset Management Company, investors would be worried about the fate of their schemes.

Says an investment manager: “The fact that a fund house is being sold implies that it is not doing well on some parameter, such as profitability, or assets under management, even though it might be giving good returns to the investor. The investor also would have legitimate worries whether the new fund house will give similar returns.”

The answer isn’t simple. For instance, when a big fund house like HDFC Mutual Fund takes over Morgan Stanley Mutual Fund, or Birla SunLife, buys ING Mutual Fund, investors would have the comfort that a large player with a record of over a decade is taking over their fund house.

 

They can always go and check the performance of the HDFC or Birla SunLife’s schemes. Often the acquirer may absorb the existing fund managers as well. Says Dhirendra Kumar, CEO, Value Research: “When a well-known fund house takes over a smaller one, it can be good news for investors because they could get better fund managers.”

Financial planner Gaurav Mashruwala feels that there would be some problems when one fund house takes over another. “When such deals take place, I tell investors to stay put because one does not know how the new fund house will treat their schemes. It’s just bad luck that they are stuck in a situation in which there is little clarity. However, if the scheme does not do well for one-two quarters, I would advise them to exit,” says Mashruwala, adding that he would not tell investors to put fresh money into the scheme till things become clear. Investors have one month's time to exit the scheme without any load when the management changes.

But should investors stick around when a star fund manager moves? With Kenneth Andrade of IDFC Mutual Fund exiting the fund houses, investors may get worried whether the next fund manager would be able to deliver similar returns. Even distributors would like to do their due diligence before hard selling the schemes which he managed.

 

For Kumar, the emphasis on a star fund manager is important. “Though fund houses are not completely dependent on just one fund manager but there are big names in the market who do make a difference because being able to hold on to your beliefs (stock picks), despite being under pressure consistently to deliver is a tough job. If the baton passes on to someone who cannot take the pressure, there can be disaster,” he says. Many fund houses, as a result, have several well-known names who are allowed to run 10 or 15 per cent of the equity corpus because it allows different viewpoints to co-exist.

Yes, it is unsettling when your fund house gets acquired or fund manager quits. But giving it a little time, around one to two quarters, is important.