FM Churn and why this leads to us prefering Owner-Managed Boutique Investment Firms

PMS AIF

| Written by IME's Investor Desk on 25-Jun-24

Since 2015, the investments industry in India has seen a very sharp rise in some of the most senior fund managers (FMs) in the industry, leaving to set up their own investment funds. The strong bounce back in markets post 2014, the continued evolution of the wealth management industry in India, investors seeking newer & more differentiated investment options and other such factors, have made it substantially easier for a senior fund managers to exit employment and set up their own fund (since they are more confident of being able to scale their funds in a more evolved Indian wealth management system).

Why Fund Manager Churn is an Issue

The performance of any investment fund, is ultimately driven by the investment calls taken by it's fund manager, in terms of market-cap, sectoral & company allocations. While institutions try to build processes to reduce individual fund manager dependence, since these investment calls can differ materially from individual to individual (even within the same organisation), fund performance is ultimately intrinsically linked to the individual managing the fund.

When a senior fund manager (or CIO) leaves, the new fund manager adopts his/her own different investment style/approach and decision making process, that can have a material positive (or negative) impact on fund performance. Historic fund performance under a different manager, may no longer be relevant under new management.

What relevance is a past track-record when FM's can change?

For investors, who study the past track record of a fund, in order to make investment decisions this can be a very serious issue. What relevance is a past track record, when the fund manger who generated that track record is no longer with the fund?

We provide below a snapshot of some of the major CIO's /Fund Managers, who have left their past employers over the past 7-8 years, often to set up their own funds

CIO's who left Large AMC's to set up their own Funds

Prashant Khema (ex-Goldman Saachs EM CIO): left Goldman to set up WhiteOak in 2017
Sunil Singhania (ex-CIO Nippon MF): left Nippon to set up Abakkus in 2018
Madhusudhan Kela (ex-Chief Investment Strategist Nippon MF): left nippon to set up MK Ventures in 2017
Prashant Jain (ex-CIO HDFC MF): left HDFC MF to set up 3P Investment Managers in 2022
Pankaj Murarka (ex-CIO Axis MF): left Axis MF to set up Renaissance in 2017
Jinesh Gopani (ex-CIO Axis MF): left Axis MF to set up Taksh AMC in 2023
Kenneth Andrade (ex-CIO IDFC MF): left IDFC MF to set up Oldbridge Capital in 2015
Saurabh Mukherjea (ex-CEO Ambit PMS): left Ambit to set up Marcellus in 2018

Senior Fund Managers who left to set up their own Funds

Pankaj Tibrewal (ex-FM Kotak MF): left to set up Ikigai in 2023
Viral Berawala (ex-FM Nippon & Essel MF), Sachin Khivasara (ex-FM Enam & Nippon MF): left to set up Buoyant Capital in 2016
Abhishek Bharadwaj (ex FM State Union Life Insurance) & Anurag Jain (ex CIO Canara Life Insurance): left to set up Green Lantern with other partners in 2016 & 2020 respectively
Miten Lathia (ex-FM HDFC MF): left to set up Fractal Capital in 2020

Senior CIO's/FM's who left to join other firms

Taher Badshah (ex Head-Equities Motilal MF): left to join Invesco in 2016
Anup Maheshwari (ex-CIO DSP MF): left to join 360One in 2018
Vetri Subramiam (ex-CIO Invesco MF): left to join UTI MF in 2017
Navin Munot (ex-CIO SBI MF): left to join HDFC MF in 2021
Senior investment team at Canara Robeco MF: a large part of Canara Robeco's senior investment team, including Nimesh Chandan (CIO), Ravi Gopalakrishna (Head-equities), Hemang Kapsi (FM) and Yogest Patil (Senior FM) left for different opportunities around 2018

Important churn in Non-Owner Manager PMS Investment Teams

Motilal CIO & FM (Manish Sonthalia, Shrey Loonker, Susmit Patodia, Shanakaranarayana): virtually the entire Motilal PMS team left over 2022-23
Kotak PMS CIO (Anshul Saighal): left in 2023 after over a decade at Kotak
Axis PMS CIO (Trideep Bhattacharya): left in Sep-21 to join Edelweiss MF
Equirus FM & CIO (Viraj Mehta): left Equirus in 2024, after a period of sustained outperformance
Centrum PMS CIO & FM (Anil Sarin/Abhishek Anand): Both CIO & FM of Centrum left in 2024, leading to a large vaccum in the investment team
Nippon PMS-AIF Head-Equity (Varun Goel): left in Mar-24 to join Mirae.

Owner-Fund Manager led Fund Houses helps reduce risk of FM Churn

Investing via fund houses, where the owner of the fund house is also the primary CIO/FM of the fund strategies, helps ensure that the investment style/approach remains the same for the longer-term, and that you are not exposed to the risk of fund manager churn. This consistency in how funds are managed, is a substantial advantage of owner-manager fund houses, which is why at IME Capital we have a clear preference towards the same (especially for more differentiated PMS & AIF strategies)."