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Wrong number | Fund managers must not oppose recording of their calls

Any resistance by fund managers to such a move raises serious questions on disclosures and transparency

March 13, 2021 / 03:05 PM IST

A couple of days ago, The Economic Times reported that there was heartburn and fretting at the fact that the capital market regulator, Securities and Exchange Board of India (SEBI) has asked all the calls of fund managers at asset management companies to be recorded during the market hours.

I am surprised at the heartburn this has caused. The issue of call recording has been settled worldwide. Most jurisdictions mandate such recording. If one looks at movies or serials on Wall Street and such, the first thing any investigator does is listen to call logs. So then, why is the issue creating angst now? Something to do with the legal actions which are being initiated by regulators recently against senior people at AMCs?

The angst, as enumerated in the article, seems to be that calls of personal nature should not be recorded. Fair, but the world over, all traders and people who have fiduciary responsibility are asked to use only recorded lines during market hours. In fact, at some places, the mobile phones have to be deposited in a locker when one is at the desk. Nothing out of the ordinary here. One of the most accessed and used methods for insider trading is to trade in the name of and communicate with family members and friends. So, the best way to reduce any unwanted activity is to record all conversations, irrespective whether they are with near and dear ones.

The other argument is that the companies and government officials are cagey to talk, knowing that they are being recorded. This argument would be hilarious, were it not for the insidious nature of the reasoning. Are these conversations something one is worried about if they are heard by someone? Is something which is not be discussed transparently is being discussed? No, a corporate or public official would have issue with their conversations being recorded as they would not have anything to hide. Or are we missing something? Then, it becomes even more important to record.

All conversations with fund managers are supposed to be kosher and above board, so there should be no issues with being recorded. A resistance to such calls being recorded should, in fact, raise warning bells. As a compliance officer or risk manager at a fund house, one should see this as a sign of something not right. AMCs should in fact advertise that all the conversations of their fund managers are recorded and that’s why they are a better fund house. Not the other way around.


Remember the calls are to be recorded only during market hours. So, none of the arguments make sense. The one thing this brings out is the resistance by the fund managers in India to disclosures and transparency. It is interesting that another article talks about how investors are buying stocks rather than invest through funds.

This shows a lack of faith in the asset management industry. The aforesaid attitude and also underperformance are driving people away from the industry. The idea that “please-give-me-fees-even-if-we-don’t-deliver-what-we-are-supposed-to", has started to hurt the industry. Just to give an analogy, one hires an Uber to Borivali, the driver drops you at Andheri but expects you to pay the fare up to Borivali. The act of charging full fees even when one has underperformed the benchmark is similar. These and the lack of transparency we talked about has eroded trust and faith. That is now manifesting in people buying stocks rather than funds. So, it is important for the AMCs to get back to transparent and fair equation with the investors.

Until then, investors should focus on passive (index) investments. No worries about complaints about recording conversation with companies, government officials, etc... the passive funds provide full transparency and disclosure. And most important, no underperformance and low costs.
Sanjiv Shah is the former CEO of Goldman Sachs Asset Management India. He has co-founded 1Pay, a fintech startup. Views are personal.
first published: Mar 13, 2021 01:46 pm

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