PPFAS Asset Management Private Limited (PPFAS AMC), the wholly owned subsidiary of Parag Parikh Financial Advisory Services Limited (PPFAS Ltd.) recently received Securities & Exchange Board of India (Sebi) clearance to launch its flagship scheme, PPFAS Long Term Value Fund, which will be a diversified equity fund without any sectoral or market-cap bias. The scheme is slated to be launched in May 2013.
In an interview, Parag Parikh, the founder of the boutique advisory and Portfolio Management Service (PMS) firm which is launching the fund, says he would rather not chase assets under management (AUM) and instead, focus on delivering value for the client. The fund house, the latest entrant in a long and crowded list of fund management companies, makes it clear that investors looking for short term gains would not find its scheme a suitable tool. Excerpts from the interview:
You’re a new entrant in the crowded MF sector. What was the thinking which prompted this move?
For us, this has been a transition. About 29 years ago, I started off as a broker and we were the first brokers to have a research department. That was the competitive edge which I wanted to get the institutional business, because that was cornered by about 12-13 brokers. As far as broking was concerned, we always believed money management is a profession rather than a business. When it is a profession, you do what is good for the client. But when it turns into a business, you do what the business demands.
Unfortunately, in mutual funds today you have this mad craze for getting assets under management. You have marketing teams, distributors. You pay them anything to get the money. From our MF’s point of view, we were professionals and we will keep it that way and run the MF as professionals. That’s the idea.
What you’re saying is AUM is not the focus...
Ultimately, when you invest in our fund, what are you looking at? Returns. That is where we want to be game-changers. Secondly, what is your commitment to a fund? Today, me, Rajeev (Thakkar, CEO of PPFAS AMC) and all our senior people are going to make our own equity investments through the fund. We have to believe in what we’re doing. Whatever equity investments we have in the market, we’d rather put that in the fund.
Today all these MFs are by institutions. How did they come in? They had the money, they had the power and started MFs. Ours is an organic growth – we started as brokers, we had research, a process came in when we became portfolio managers where we have done exceedingly well. Then we thought that MF being a much better asset class, if we have to look at our clients’ interest, would it be right for us to tell them to put money in the PMS when there exists a better alternative? That’s how we went in for a mutual fund.
With about Rs 400 crore in your PMS business, what will you do with that part of the business?
You see, we want to be experts in what we know best. If we are good in money management, how can we have both PMS and a mutual fund? If one scheme does better than the other, then that would not be fair. So over a period of time, if the MF is a better asset class, we’d definitely want our clients to come there.
So you will wind down the PMS over time?
Yes. Because if we have to be professional, we cannot do justice to both the things. Secondly, internally if we believe that the MF is the better option and I am putting my own money there, I cannot be telling clients to come to the PMS.
Don’t you think some high net worth individuals (HNIs) will prefer PMS rather than a mutual fund?
What is my job? It is to create HNIs, not to chase them. For my professional ethics, what should be the right thing? The firm is known by a certain value system which we want to follow. How do I do both? These are tough decisions, but as professionals they have to be taken. What is good for the client has to be done. Today, in this craze for AUMs and the lack of ownership about what you’re doing has led this to being just a business. I am sure we will be successful if we do it this way and keep it as a profession.