As the new CEO of DHFL Pramerica MF, what are your key priorities?
DHFL Pramerica MF has successfully completed the largest mutual fund acquisition in India till date. This transaction is a testament to the long-term commitment and vision of both the shareholders, DHFL and Prudential Financial, Inc. (PFI)*. Prudential Financial Inc has almost 150 years of global investing experience. Coupled with the local expertise and reach of DHFL, we are well placed to capitalize on the opportunity in Indian MF market.
Post this acquisition, DHFL Pramerica acquires reasonable scale and a wide-range of well-performing products and capabilities across the asset classes.
Our objective is to further build on these capabilities and deliver best-in-class investment solutions and services to our clients. We have a strong investment platform and will be looking at investing in technology to enhance our distributor engagement and customer experience. We believe strong investment performance backed by clear focus on client service will help us achieve a leadership position in the industry over time.
How will you ensure that Deutsche MF assets remain in the new fund house?
As we bring together the two organizations, we have been able to put together very solid teams across all key functions like investment and risk management, sales coverage, operations and customer support. All the core members of erstwhile Deutsche team have moved across to DHFL Pramerica. Our combined investment platform now boasts of a solid 16-member investment team with cumulative investment experience of 200 years.
In fact, as we present our credentials, clients realize that the combined platform is a much stronger backed by clear vision and commitment from shareholders.
While the M&A by itself is disruptive and brings some uncertainty, I must say that we are delighted by the excellent support that we have received from our clients and distributors who have continued to remain invested with us. In fact, in the months between the transaction announcement and its close, our assets have grown by over 20%.
Have you merged certain schemes during this integration phase?
As we integrated the two organizations, it was inevitable that we looked at the combined product suite to ensure that we had right products and solutions for investors’ needs and there was no confusion in the product positioning.
We identified some funds which were similar in nature to other funds in our stable. These funds were merged to create fewer credible size funds which are clearly differentiated and positioned correctly.
We are happy with the outcome of this process and believe that our product bouquet now offers a good choice to investors across the risk-return matrix.
A substantial portion of Deutsche MF assets were in fixed income schemes. How do you plan to grow your equity book?
If you look at the MF industry’s composition of assets, it is heavily tilted towards debt and it’s not very different in our case. It is not surprising that given the relatively attractive rates of interest, investors prefer to invest a sizable chunk of assets in fixed income. As a combined entity we would continue to build further on our strength in this area.
However, we have very strong investment performance in equity space too. For example our flagship DHFL Pramerica Large Cap Fund has track record of over 13 years and has over this period grown the initial investments by over 12 times. We have a good range of investment options across the equity platform on both MF and PMS space.
Over the last two years our equity AUM has grown over 2 times. We believe we can continue to grow at a fast clip on the back of strong investment process backed by a very experienced management team. Our equity team is headed by E. A. Sundaram, an industry veteran with 25 years’ experience with a very credible track record and a well-defined investment philosophy.
How do you plan to leverage DHFL network to build your distribution network?
Over the years we have worked with a number of distribution partners and we will continue building further on our distribution relationships. In addition, we will also look at leveraging DHFL network for distributing our products.
DHFL has a large distribution network of 362 company operated locations across India and 357 locations through alliances. DHFL has an office in almost every district of India. Almost 80% of this distribution footprint is spread across Tier II, Tier III cities and outside the municipal limits of the metros. These customers have no or very low exposure to mutual funds. This makes them a key target audience for us. We are working on initiatives to introduce these customers to mutual funds. We believe these investors can be potential investors for mutual funds.
Do you think fund managers are taking undue risks in managing debt funds?
The Indian banking system has seen a sharp rise in NPAs in recent times. The fact that the banking industry NPAs are at the highest in last fifteen years tells you about the stress in the overall financial system.
In this environment, debt fund managers have done an excellent good job of keeping investors money safe. Yes, there have been a couple of instances of asset quality slippage in some funds but the fund managers were quick to reduce the exposure to troubled assets and have ensured minimal credit losses to investors. Overall, the industry has managed to deploy assets in good quality assets and has developed strong surveillance to ensure strong credit performance. The recent guidelines from SEBI on limiting concentration will further help in making the fixed income industry safer for investors.
Lastly, you can’t guarantee accident free roads. However, you can ensure that you have a well-trained driver, equipped with the best navigation tools and safe vehicle and make sure that he follows all rules strictly to avoid accidents.
What would be your advice to investors?
Keep asset allocation at the core of all your investment decisions. While equity funds are indeed the best bet for long-term wealth creation, for near-term goals you may consider well managed fixed income funds too. Indian interest rates are among the highest in the world and with recent moderation in inflation, the real rate of interest is attractive.
Do give time for your equity investments to perform. Equity markets by nature are volatile and this is something we can’t wish away. We probably achieve precious little by tracking and worrying about the markets daily. Keep it simple, invest in good funds, stick to asset allocation and give your investments time to perform.
Your outlook for equity and debt market for the next two years.
Despite significant moderation in inflation over the last couple of years and continuous improvement in other key metrics like current account deficit, government fiscal deficit, interest rates have remained relatively high. Further, the chances of rate cut have increased post the recent cuts in small savings rates and the fiscal prudence demonstrated in the latest Union Budget 2016. I find fixed income investments quite attractive on the risk-reward spectrum and would recommend investors to allocate money to medium-term and accrual funds.
On equity, while markets have recovered somewhat post budget, they remain 15% below recent highs. On the other hand, we are seeing a number of steps from government on cleaning up banking system, power and steel sector and investment in infrastructure etc. Also, we see potential positive triggers in interest rate cuts, monsoon and higher discretionary spending post the implementation of the recommendations made by 7th Pay Commission. Overall, while the valuations have moderated, medium term prospects appear better. Investors would do well to consider investments in equity funds with a three to five year view.
*(PFI, a company incorporated and with its principal place of business in the United States, uses Pramerica as a trade name for its affiliates in select countries outside the United States. Prudential Financial, Inc. of the United States is not affiliated in any manner with Prudential plc, a company incorporated in the United Kingdom.)
