Barely a few days ago, ace fund manager and chief investment manager of HDFC mutual fund Prashant Jain announced his resignation after being at the helm for 19 years. He was the first Indian fund manager to cross the landmark of managing more than ₹one trillion of equity assets across four funds. No wonder then some referred to him as India’s Peter Lynch, while another called him Donald Bradman of mutual fund industry.
Among several firsts, he holds the enviable record of having managed one fund for over quarter a century. He started managing HDFC Balanced Advantage Fund (as known now) and managed it for 28 years.
Although some experts tried to assuage the investors by stating that the industry should refrain from overreacting to his exit, where some called his resignation bad news.
Therefore, we try to dig deeper and explore how a fund manager — who is meant to manage funds by keeping allocation of assets within a pre-decided range, and by following a preordained investment strategy — becomes so important to the fund house and to the schemes he manages.
We asked a number of experts, most of whom acknowledge the significance of a fund manager in the fund house and schemes, particularly the active ones.
“Fund manager is important in actively-managed schemes. They follow the fund house's philosophy — be it value, growth or buy-right-sit-tight, etc. But when we talk about Prashant Jain, he was not just another CIO. Not everybody has managed one for longer than 25 years, and not everybody has managed the equity in excess of ₹one lakh crore at a given point of time,” said Amol Joshi, Founder of Plan Rupee Investment Services.
He also says that choosing a fund scheme based on a fund manager should not be unequivocal.
“There should be fitment of scheme to the goals and one should see whether your risk appetite aligns with that of fund manager. If you don't want to invest in small caps but the fund manager is good in choosing small caps, or if you are not comfortable with his equity management philosophy then that fund manager is not good for you. So, this clearly means that there should not be one-size-fits-all approach,” he adds.
Like a doctor in a hospital
Some believe that a fund manager is to a fund house what a doctor is to a hospital, thereby indicating that s/he is indispensable and pertinent to the scheme. “If you go to a hospital for a particular doctor and when that doctor is not there, then one may have doubts as to whether the next junior doctor is as good as the previous one or not,” said Ankur Kapur, Founder of Plutus Capital.
“A large AMC is expected to have a sensible succession planning and it will be better prepared for the exit of their key employees, and the impact will be minimal. To be able to judge a fund manager’s performance, you should see the performance of funds he has managed for past five years,” he said.
Process-driven or fund manager-driven?
Some financial say that when a fund house and its schemes are processes-driven then the individual touch of fund manager is usually not a game-changer.
“To gauge a fund manager’s worth, it is vital to see whether it is process oriented or a fund manager-led. Large fund houses are generally process-oriented and the scheme is not managed by one person but by more than one. A famous fund manager's exit can only have short-term impact because of the number of years and fame. As far as the performance is concerned, a large cap fund's performance can vary between 1-2 percent whereas mid and small cap funds require higher due diligence and the differential could be as much as 4-5 percent,” says Sridharan Sundaram, Founder of Wealth Ladder Direct.
Abhishek Dev, co-founder and CEO of Epsilon Money, says that investment process and discipline ought to be prioritised over the merit of a fund manager alone.
“Prashant Jain is an undisputed legend in the fund management industry. And by being so, he set up a robust, transparent and repeatable investment process for HDFC Funds. Having said this, for any asset management company, the investment process and discipline should take precedence over reliance on individual fund managers, however brilliant they be. This is the only way to sustain performance and avoid mishaps in the investments business,” said Dev.