In this second and concluding part of the interview, Pankaj
Sharma, EVP – Head of Business Development and Risk Management at DSP BlackRock
Investment Managers shares his thoughts on risks involved in various fund
How should distributors/investors take an informed call by
evaluating risk processes of an AMC before investing in a fund?
is difficult for an investor or distributor to have access to an AMC’s risk
management process. Perhaps the best way is to ask the AMC to give details on
their investment and risk management process as well as the teams supporting
these functions. Normally this information is provided by AMCs for due
diligence done by large investors and/or distribution houses. Some investors
may find this document a bit technical but if one needs to know more about how
money management is done, perhaps this is the only way.
also believe that investors should not look at the past six months or one year
returns. They should look at the consistency of the performance for a period of
at least three years. They should evaluate a fund’s performance under different
market cycles. There could be bad patches and a fund may not be able to perform
consistently all the time.
How should investors
evaluate fixed income products?
retail investor’s participation in fixed income funds is very low but it’s
increasing. People are still looking at returns in fixed income products. They
are not looking at the credit quality and associated risks of the portfolio. They
should see if the fund manager is taking undue risks. For this, investors can
look at third-party rating agencies’ outlook on a particular sector and company.
How has the MF industry’s
risk management process evolved over the years?
the early days of the MF industry in India, there were only compliance teams
and there were very few people from a pure investment risk management
background. Compliance teams were given the responsibility of managing risk. It
is only now that the industry has built an active risk management function.
BlackRock has had an independent risk function for the last ten years. It has evolved
in the same direction that senior management had envisaged. We wanted an
independent risk management function that can objectively assess risk. We have also
established very good integration with BlackRock’s Risk Management team so that
we could emulate their risk management practices. Our portfolio goes through
the same scrutiny which any international portfolio of BlackRock goes through
in other parts of the world.
How do you mitigate risk in
a sector fund?
returns of sector funds are linked to the performance of a single sector and
hence may be more volatile than a more diversified portfolio of equities. We
have only one pure sector fund which is DSP BlackRock Technology.com Fund,
which invests in telecommunication, media and technology sectors.
the fund is a diversified or a sector specific fund, we follow the same
disciplined investment approach and risk management philosophy whereby every
position is acquired after a thorough understanding of the business. Risks
related to factors like market risk, style risk, top risk exposures etc are
monitored at a portfolio level similar to other diversified equity funds.
Which new overseas funds are
in the pipeline? Do you find that Indian investors’ appetite for such funds is
endeavour is to provide various investment opportunities to Indian investors.
It is up to the investors and their advisors to select the appropriate product
depending upon their risk appetite and return expectations from such a product.
BlackRock is the world’s largest asset manager offering access to an array of
international products & investment themes and we provide that access
through international feeder funds to Indian investors so that they can achieve
desired diversification in their investment portfolios. We will continue to offer
international products as and when we feel the time is right for the relevant
Are you planning an
Infrastructure Debt Fund (IDF)?
are not planning it as of now. IDFs are close ended products. Liquidity is an
issue. Domestic investors are unlikely to invest in IDFs when they have an
option to invest in open-ended funds. Liquidity has become an important factor
for international investors after the 2008 financial crisis. They might not
want to redeem but they may want an option to exit. IDFs in the current form are
not likely to generate much enthusiasm among investors due to this perceived
lack of liquidity.
Small & Mid Cap Funds
are perceived to have greater risks as compared to large cap funds. What is
your investment philosophy in both (Small and Mid-Cap Fund and Micro Cap Fund).
How do you play the risk return trade off?
and mid-cap companies give good returns as they grow and mature. If it’s a
mid-cap fund then it has to behave like a mid-cap fund. When investors are
investing in these funds they are taking that risk. DSPBR Small & Mid Cap
fund and DSPBR Micro Cap Fund are doing well in their category. We tend to
diversify the portfolio as much as possible. These funds may be more volatile than
large cap funds, but they can give good returns over the long run if investors
are willing to take additional risk and remain invested over the medium to long
term. Our internal guidelines ensure that the funds do not deviate from their