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PGIM India Mutual Fund has witnessed 40% growth in its AUM in the calendar year 2022. What are the three things that have contributed to this growth?
The growth was largely due to our continuing good performance in the 2-3 & 5-year time frame, especially in our flagship equity strategies like the PGIM Mid Cap Fund and the PGIM India Flexi Cap Fund. We also had growing traction in our hybrid funds. An underlying factor is our clear differentiation of benefits driven by our investment process. Also, a clear positioning of our strategies, especially in the hybrid category helped. If we had not seen the suspension of limits for international funds, we believe that we would have seen good growth on that front as well. So consistent medium to long-term performance, differentiation across our strategies and clear communication of that differentiation which can be translated forward to clients were the three factors contributing to our growth. Though I would also admit that we could have done even more on all three fronts. That will be our endeavour going forward.
Of late, your fund house has seen some changes in the fund management team. While I am certain that your fund house has a well-established process, how will you ensure that MFDs keep their faith in your fund house despite these changes?
We have a well-laid-out risk management and fund management process in place. Our new CIO Vinay Paharia comes with nearly two decades of equity research and fund management experience with a good track record of managing funds across strategies. As a fund house, we will continue to follow our philosophy of GARP, focusing on downside protection and bottom-up stock picking to generate risk-adjusted returns.
Our initial discussions with partners give us a sense that both Aniruddha and Vinay are well respected. Their orientation to a strong process-driven approach where our analyst team works alongside the fund managers has been well-tested. However, there are definitely going to be some changes to the portfolio largely driven by our learning over the past year and essentially an incremental strengthening of the existing process.
Our short-term performance has been impacted largely due to a rotation to traditional value sectors while we are predominantly growth-oriented. While we are confident of our thesis and the portfolio for the medium to long term, we are not ignoring any lessons from the short term that we need to take away and incrementally added on to the process.
On the equity front, we continue to be focused on building our franchise and launching funds where we have gaps like the large & mid cap, retirement, and focused fund categories in 2023. We do believe that in increasingly volatile and complex times, our bottom-up investment approach combined with the ability to leverage global insights from our parent gives us the required confidence to deliver consistent performance over the medium to long term.
PGIM India recently announced two new business verticals - International and Alternate Investment Funds. What was the rationale for launching these two businesses and what opportunities do you foresee in this space?
We are witnessing growing opportunities in both the domestic high-net-worth and retail markets driven by wealth generation, as well as offshore investments in India. PGIM India has achieved significant growth over the last few years. The wealth of experience and track record of our local leadership and investment talent gives us immense confidence in the next stage of growth.
The International Monetary Fund (IMF) estimates that India’s GDP growth will be at 5.9% for 2023 while the global growth is pegged to be at to 2.8% in 2023. India’s focus on digitisation, thrust on manufacturing, job creation and growing exports, among others, will play a key role in supporting India’s growth story.
A high degree of customisation, diversification and access to new investments which are not available through retail products is attracting HNIs toward AIFs. This is a testament to the rapid growth in AIF assets. According to a CRISIL report, assets under management in AIF are set to grow from the current Rs 6.4 lakh crore to Rs 26 lakh crore in 2027.
As India continues its steadfast growth, there is growing interest in Indian equities among foreign investors. PGIM India AMC will offer advisory services to such potential clients who are looking to invest in India. To begin with, we are focusing on investors from Asia by leveraging PGIM’s global network. At a later stage, we will also tap into investors from other regions.
Can you take us through your offerings in the international and alternate space?
At this juncture, we are awaiting regulatory approvals for launching funds in the AIF space. It will be a category III AIF. We will be able to share more details about the offering once we are closer to the launch. On the international front (separate from our international FOFs), we already have a large advisory mandate and getting more advisory mandates driven by model portfolios is possible. However, we will also look to clients who may want to replicate our existing strategies based on our track record. There will be extensive due diligence done by clients and the identification of strategies can take time.
Why should MFDs look at introducing international funds and alternatives to their wealthy clients?
We offer three funds in the International FoF space: PGIM India Global Equity Opportunities Fund, PGIM India Emerging Markets Equity Fund and PGIM India Global Select Real Estate Securities FoF. You get to hold companies from all geographies, sectors and market capitalisation through Global Equity and Emerging Markets Equity Fund as they have a diversified mandate.
We have consciously steered cleared from launching thematic, sectoral-based, and country-specific international funds as we believe such focused strategies require clients/advisors to time the entry and exit and predict which markets/themes will do well. History suggests that no single sector/country outperforms every year. International investing is necessary to diversify your portfolio to include companies/themes which are not available in our domestic market. International Funds provide diversification and an opportunity to participate in themes/sectors not available in India.
As far as alternative is concerned, with growing wealth also comes the need for clients to fulfil their inner expressive needs. Essentially, they would not want mere utilitarian products that are on a broad public mutual fund platform but something more nuanced and specific that fulfils their need to express their status and exclusivity. Products that can also short the market or invest into unlisted stocks or start-ups and new age businesses are all possible in the alternates bucket. Therefore, having the competency to also offer this category of investments to clients that want them is the only reason for MFDs to be more familiar with the category.
Passives have been growing very rapidly in India. Despite this, PGIM India does not have any meaningful presence in the passives space. What’s the reason and what is your plan in this space?
Globally, PGIM specialises in active investing strategies and that will continue to be our niche in India too. While passive funds can complement investors' portfolios, we believe active funds will continue to generate decent alpha in the mid and small cap space for the foreseeable future in India. Having said that, our plans for this space will fructify only after we have completed offerings in the active categories in which we have yet to launch funds in. Like the large & mid cap category, focussed equity category & the retirement category
With no tax advantage, how can MFDs position debt funds to their clients?
Debt is an important component of the portfolio when you are deciding the asset allocation for a client. The right asset allocation between debt, equity, gold and alternatives can protect portfolio drawdown in adverse market conditions. Debt funds can be used for parking emergency corpus and other short-term goals. At this juncture, when interest rates are high, fixed-income funds offer a better risk-reward opportunity.
We believe debt funds will continue to offer better risk-adjusted returns with active management at a low cost as compared to traditional products. Moreover, debt funds offer better liquidity and diversification. Thus, tax should not be the sole criteria when choosing investments. The allocation to debt should depend on the client’s goals, risk appetite and investment horizon.
While LTCG and indexation are no longer available in debt funds from April 1, 2023, you still have the options like equity savings, arbitrage, and balanced advantage fund, where asset allocation is taken care of and at the same time you get the benefit of equity taxation. Of course, the decision would depend on how much equity exposure is required in the client’s portfolio and individual client requirements.
What are your three key priorities for the fund house for the next three years?
Well, I would say that the three key priorities will always be to strive to deliver good and consistent performance, performance, and performance. Our main priority continues to keep our focus squarely on our investment performance and process. We are adding more members to the analyst team and will also be adding another fund manager. With three senior professionals in Srinivas, Aniruddha, and Vinay and a strong analyst team, we continue to invest in our investment platform strength to deliver consistent performance over time to client categories. Every other aspect we focus on will be around supporting that goal.
From a more conventional, business-as-usual perspective, our priority is to keep building on our core mutual fund franchise. Besides, the other two big priorities are to kick start and build the Alternates and international business verticals that we have launched this year.
