SEBI's latest norms on remuneration of key employees in which it has asked AMCs to pay 20% of the total net salary in the form of MF units has not gone down well with a few AMC officials and MFDs.
While lauding SEBI's intention behind the move, some AMCs questioned the practicality of the decision.
"The circular on skin in the game, while a good idea in spirit, is going to be extremely problematic in implementation," said MD & CEO of Edelweiss MF, Radhika Gupta.
She highlighted two major problems in the new norms. First, she said, the lock-in of 20% income for three years may cause difficulties for key employees who do not earn high salaries.
"It is forcing them to lock-in a reasonable portion of their income for 3 years. It mandates how much one saves. For a guy earning Rs.15-20 lakh, imagine how difficult it is to put away Rs.3-4 lakh. We are constraining employee cash flows," Gupta said in a Twitter post.
The weighted AUM concept was the other issue raised by the CEO. "Circular suggests we have to invest in all schemes basis weighted AUM. So, if I run a 80-20 debt equity business, I will be forced to maintain this asset allocation irrespective of my risk appetite. Also, for a fund manager managing small cap fund, he has to invest either in his schemes or a higher risk grade (may be sectoral fund even if he is not comfortable with it)," she said adding that if a person runs a high-risk scheme doesn't means that he has high risk appetite.
Another CEO who did not want to be named said that the key employees also have obligations like home loan. “If a key employee pays home loan EMI which is 50% of his net salary, he ends up with just 30% of his net salary to manage household expenses.”
Neil Parikh, Chairman and CEO of PPFAS MF said, “Skin in the game is great if done with free will. It shows that people are confident and convinced with what they do is right. This cannot be enforced. It dilutes the whole purpose of skin in the game.”
"A debt dealer (not a very high paying job) should not be forced to lock-in a reasonable portion of his/her salary in liquid funds for 3 years. In fact, a lot of the ‘key employees’ mentioned in the circular should not be forced, especially in these tough times," he added.
MFD Hitesh Kakkad said that SEBI’s approach may not be the best way to bring in more accountability. "I agree that transparency is required but this doesn't seem to be the right way. A liquid fund manager would not like to lock-in his money in liquid funds for three years and a midcap scheme may not be suitable for a midcap fund manager nearing retirement,” he said.
MFD Azim Jagani said the move is in the right direction. “The new rules will benefit investors by ensuring better management of funds,” he said.
Critics share suggestions
Radhika Gupta said there was a simpler way to bring 'skin in the game'.
"If we wanted to build skin in the game a simple rule would do it: It should be applicable for employees earning more than Rs. 50 lakh a year. Also, they should be allowed to invest in schemes of their choice within the fund house," she said.
Hitesh Kakkad said he is in favour of a rule mandating MF officials to make all their investments in the fund house they work with. But the amount one wants to investment should be a personal decision, he said.
