Aug 20, 2013,16.57 IST
Should Indian fund managers disclose ownership?
Few would dispute the importance of a fund manager when it comes to mutual fund investments. Here is an individual who is entrusted with the responsibility of managing investors' monies. Sure, one expects him to have support in the form of an analyst team and an investment process to guide him. But when it comes to making investment decisions, he is often the first among equals.
So what factors do investors look at while evaluating the fund manager? The track record i.e. performance of funds managed by him across market conditions and time frames. Stability is always a positive. Fund managers with a reputation of frequent job changes are frowned upon.
A frequent change in fund managers can hamper the fund’s performance and in turn spell trouble for investors. Fund manager communication (although a bit uncommon in the Indian context – more on that in a subsequent article) can also offer insights into his thought process and investment style.
There’s another factor that can reveal a lot about the fund manager and his commitment to the fund – his personal investments in the fund. Consumers always take comfort from the fact that the ‘cook eats his own cooking’. It’s no different with fund managers.
A fund manager investing his personal monies in the fund he manages can be a source of confidence for investors. This is a classic case of ‘putting one’s money where the mouth is’.
Sadly, such information is almost never available in public domain. Fund houses have evidently never felt the need to disclose this information. Then again, they can take shelter under the fact that it is not mandatory to make such disclosures. And perhaps, there lies the solution – introduce a regulation that makes it mandatory to disclose the fund manager’s holdings in his funds.
How to bell the cat
In recent times, the market regulator i.e. the Securities and Exchange Board of India (SEBI) has taken up the investor's cause on several occasions – from abolishing entry loads, introducing uniformity in exit loads to establishing a code of conduct for distributors, among others.
Clearly, the regulator has done its reputation no harm. All SEBI needs to do is introduce a regulation making it mandatory for fund houses to disclose the investments made by a fund manager in funds managed by him, in the fact sheet.
Hence, alongside information like the fund's benchmark index, minimum investment amount and inception date, which are routinely disclosed, the fact sheet should contain another data point - number of units held by the fund manager. This seemingly simple piece of information can go a long way in aiding investors understand if the fund manager 'walks the talk'.
Critics may point out that this amounts to intruding on the fund manager's personal space, since his personal investments will be made public. However, this argument doesn’t hold good. All the fund manager is doing is revealing his investments in the specified fund.
It’s not like his entire portfolio is being revealed. Given that public monies are involved and the responsibility being shouldered by the fund manager, there should be no reason to complain.
Others may claim that some fund managers may invest nominal sums of money in their funds, to avoid being seen in bad light, and thus defeat the purpose of such a provision. That’s fine.
When fund managers across the board disclose their investments, making comparisons will be easy. Hence, it won’t be difficult for investors to differentiate between fund managers paying lip service and the ones who are truly committed to the cause.
The positives of such a disclosure will far outweigh the negatives (if any).
We are in a time when efforts are being made to incorporate a greater degree of transparency in the mutual funds domain, and thereby, make it more investor-friendly. Disclosing the fund manager’s investments in the fund will only further this cause.
And who knows – some astute fund houses just might incorporate the fund manager’s investments into their marketing plan. That would make it a real win-win situation!
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