Over the past few years, ICICI Prudential AMC has delivered an impressive showing on its equity, fixed income and multi-asset funds.
Nimesh Shah, Managing Director & Chief Executive Officer, ICICI Prudential Asset Management Company Limited, speaks on what makes his AMC stand out.
Earlier this year, ICICI Prudential AMC won all three Morningstar Awards in the best fund house categories. What according to you has been the key for running such a successful fund house?
If a fund house manages money well, more investment is bound to come in. Over the last 5-6 years, we have brought in a complete investor-centricity in the company. Every rupee invested is invested keeping in mind the benefit of the final investor.
How does this translate into actual working? Can you give an example?
For instance, as a result of this approach, we launch new funds only from an investment point of view rather than a sales point of view. More often than not, the two viewpoints do not go together.
Sales, as a function, likes to sell what has already done well because they can showcase past performance. From an investment point of view, that is the last thing to do. For instance, ICICI Prudential Value Discovery invests in mid and small caps and should be sold to investors when such stocks have underperformed, rather than when the fund has given sound returns due to mid caps rallying.
Another aspect is our sharply focused products. Every fund gives a different slice of the market to the investor. Each product has a character of its own and behaves exactly like it should. The purity of product positioning has been core to our practices with a commitment to continue to manage our funds strictly according to the mandate stated, irrespective of the market environment, or short-term underperformance, or any other factor. For instance, if ICICI Prudential Value Discovery has to go by the value investing strategy, then it would always have a PE ratio much lesser than that of the market. All three flagship funds- ICICI Prudential Value Discovery, Dynamic and Focused Bluechip are completely different from each other. Discovery is based on value investing, Dynamic works on volatility and Focused Bluechip is a large-cap play.
In terms of investment approach?
In terms of our investment approach, we do not have any star fund manager in the team. In fact, no fund manager manages more than Rs 5,000-6,000 crore. Fund managers are supported by in-house teams providing market leading research, risk management and dealing capabilities.
We have a culture where fund managers are encouraged to develop their individual styles, but at all times these have to be practiced within the overall investment framework. We have consciously aligned styles with fund objectives.
Indian fund managers take pride in being the best bottom-up stock pickers. For that matter, our experience in 2008 taught us to focus simultaneously on the 'top down' and 'bottom up' strategies. This blend of approaches makes us different.
Your debt fund team has seen some change in the past few years. You now have someone who is a credit specialist. Can you tell us more?
In debt funds, one can either take a duration call, liquidity call and credit call.
Credit is a very specialized area and one needs to have strong credit appraisals and processes. We have strengthened our credit team by building a structured process around our asset selection exercise. After going through this rigorous process, where we took into account external credit ratings, track records of promoter and group companies along with ICICI Group's experience, we have created a target list for investment. The companies in the target list were also discussed in great detail with the independent in-house research team; this team has no business targets and reports directly to the CIO. This list is now the guiding force for the debt investments of the AMC.
Furthermore, efforts have also gone into finding structures and asset classes where risk-return profiles are positively breached on account of regulatory arbitrage e.g. where commoditised providers of capital like banks are not present. For example, banks cannot provide financing to promoters or holding companies; banks cannot provide financing for domestic acquisitions and land acquisitions.
Lastly, we also like to take an active credit call in some of the investments in terms of whether the rating is likely to be upgraded and if the market has not priced in any upside on account of that. In our funds like regular savings (RSF), corporate bond (CBF) which are accrual funds investing in corporate bonds with the aim of providing yields higher than traditional options and government securities, we take credit calls. So, we are on a continuous lookout for such opportunities which would give our funds an alpha.
Why were the Value series close-ended? Was it from the business perspective? SEBI asked fund houses to invest 1% of the amount raised in open-ended schemes. Is that a reason to launch close ended funds?
Firstly, let me say that Indian retail investors are underinvested in equities and we want them to increase their investments to this asset class.
Specifically in November 2013, investors were not ready to invest in equity. The market was polarized and except for a few stocks, the broad market was not performing well. We believed it to be the best time to invest and therefore, we gave a buy call to investors and decided to launch our value series, in order to encourage equity investing. There is a belief that since high commissions are paid upfront that is why it is a preferred route for the industry. However, as far as the investor is concerned, the expense charged is the same, be it an open-ended or close-ended fund.
