Does A Fund Managers Exit Matter?

As Ron Chernow, an American writer and journalist put it, “Mutual fund managers are trapped in this rather deadly vicious circle – the more successful they are, the more money flows into their mutual fund. Then, it is more difficult for them to beat the market averages or even to match their past performance.” In the India of today, mutual funds have become one of the greatest investment instruments to democratise wealth. It is a profitable platform with the potential to turn your hard-earned money into a fortune over time. 

And the person who is bestowed with the responsibility to ably handle your investment is the fund manager. However, fund managers change employment or the fund they manage when better chances arise. Investors, though, are bothered by this. This situation arises because of the fund’s track record. You decide to invest in it and then the person in charge of increasing the investments leaves. What action should investors take in this situation and how do investment firms handle this? Let’s decode this scenario.

The Exit Plan
Any mutual fund’s performance is determined by its fund manager. As a result, when the fund management leaves a fund, the investors are frequently forced to decide whether to keep investing or withdraw their money. There is no right or typical response to this query or uncertainty. There have been instances when the removal of the fund managers harmed the performance of the fund or where the hiring of a new fund manager revitalised it.

In such circumstances, the investors should keep an eye on the fund’s performance throughout the next several months or even a full year. It is advised to withdraw from the fund and look for better investing possibilities if the fund’s performance suffers. It is crucial to remember that even a well-managed and consistent portfolio of a fund might see a brief decline in value. However, a fund with solid assets is certain to perform better over time and provide investors with the highest possible returns.

Following the Investment Philosophy
The investment philosophy of a fund house stands equally critical for its success along with the fund manager. For instance, Motilal Oswal AMC rigorously adheres to the ‘buy right, sit tight policy’, which can be seen in the company’s reduced ratio of portfolio turnover. Similar to this, Franklin Templeton and ICICI Prudential AMCs carefully implement their value approach, despite some underperformance. Whereas, the expansion and concentrated bets approach is employed by Axis AMC. But according to mutual fund experts, the philosophy depends on the type of investing experience you seek. If you are a value investor, avoid AMCs or schemes with growth strategies, and vice-versa.

Performance of Various Star Fund Managers 

Fund Manager is still the Captain
Despite the AMCs’ insistence that the procedures and systems they use are more significant than specific individuals, a fund manager actually makes a significant contribution to the performance of their plan. In the last few years we have seen that following the departure of a scheme’s star fund manager, their performance fell. So, what action should investors take when a fund manager decides to exit? Going back to the drawing board and closely examining the justification for investing in that fund is the first step. You must initiate action if you have invested in a scheme because of its well-known fund manager. If, however, the methods and procedures of that AMC satisfy you, keep your investment.

Most of you are already aware that HDFC AMC’s long-time fund manager Prashant Jain announced his resignation sometime back. There is no question that the long-term performance that his funds delivered (given the AUM) was exceptional despite the recent phase of underperformance, which can be attributed to contrarian stock bets. Many of his fund’s investors are now wondering: Whether a ‘star’ fund manager carries his or her success with them in light of this decision. Should the fund’s investments be redeemed right away? Should we keep making new SIP investments or stop?

If we examine several fund managers’ exits, we can see that there is no simple solution to these difficult concerns.

Assessment of Fund Managers
Fund managers undergo constant evaluations. Experts in the financial sector, investors, peers, etc., could perform this review.

Several criteria may be considered such as the foundation of his judgement. Some of these factors include:
■ The fund’s performance in comparison to the benchmark.
■ The fund manager’ background in general.
■ Competencies of the fund manager.
■ Investment approach.
■ Various ratios, returns and costs are compared with peer funds, among other things.

Keep in mind that your fund manager is not a superhero. And even if he does try to, being overly dependent on him wouldn’t be the best course of action. A big supporter of wealth creation, we are not attempting to downplay the significance of a fund manager’s experience as they have a crucial role to play, even in a fund house that is process and team-driven. To ensure that neither the fund manager nor the fund house dominates the other, it is important to strike a balance between the two.

Fund Performance Before and After the Fund Manager Exits

Fairly speaking, the fund manager’s presence or absence should not be the only factor included in this before-and-after comparison. The way funds are delivered during these two stages is significantly influenced by the investment philosophy, timing and market cycles. However, it is evident that frequently, though not always, fund performances have significantly declined.

The performance of the new fund manager, on the other hand, often stayed favourable or even improved as a result of how successfully the AMCs handled the transfer. To divert attention from the exit of the fund manager, all fund houses typically assert that they already have an internal investment process that will facilitate the changeover. However, you can’t just believe what they say. You need to watch out over the next year or so and decide

Duties and Responsibilities of a Fund Manager
Whether a fund is actively managed or passively managed relies on the fund manager’s function. Since the main goal of an actively managed fund is to outperform the market, the fund manager’s role is even more important. Whereas in the case of a passively managed fund, the fund manager must match or meet the returns of the underlying index it tracks with the least amount of tracking error feasible.

Wealth Creation
The primary duty or responsibility of a fund manager is to build and safeguard the investor’s wealth. To fulfil these criteria the fund manager employs a number of strategies and instruments that include basic and technical analysis of the investments and the stocks. The help of a variety of assistants with solid technical data analysis skills is available to fund managers. Also, ensuring that your portfolio is sufficiently diversified to reduce the risks without diluting the profits is another crucial factor.

Taking Care of the Fund’s Performance ―
To ensure that the primary goal of the fund and the investor portfolios are realised, the fund manager must regularly review the investments or equities they choose to invest in. With the sole purpose of maximising the investor’s wealth, this ongoing monitoring enables them to make wise judgments about whether to enter or leave the market.

Complying with Regulations ― Another crucial component of the fund managers is compliance with numerous regulators, including SEBI and other agencies. With regard to many areas of the fund, such as reporting, expense ratios, fund redemption, etc., Securities and Exchange Board of India (SEBI) has established several rules. The fund manager is responsible for making sure that all of these regulations set forth by the relevant authorities and current laws are followed. 

Monitoring Tasks Assigned to Third Parties ― To fulfil all demands or expectations from the fund managers, supervision is essential. Several times, assistants or outside parties take over some of the fund managers’ duties. The fund manager is accountable for overseeing these responsibilities and making sure they are completed without any mistakes.

Your fund manager is not a superhero. And even if he does try to, being overly dependent on him wouldn’t be the best decision. To ensure neither dominates, it's important to strike a balance between the fund house and the manager. 

Top Performing Star Fund Managers
Here are some of the top performing managers that you need to be aware of:

Shreyash Devalkar: Axis Mutual Fund ― Shreyash Devalkar oversees the Axis Mutual Fund’s top-performing funds and has 17 years of experience in equity research and financial management. Axis Bluechip Fund, Axis Flexi-Cap Fund, and Axis Mid-Cap Fund are just a few of the funds he has successfully managed since joining Axis AMC in 2016. He formerly worked at BNP Paribas, IDFC AMC and IDFC Securities before joining Axis AMC. Devalkar’s schemes have unfailingly surpassed the benchmark. The Axis Mid-Cap Fund, one of the three schemes he oversees, has produced the best returns. While the Axis Mid-Cap Fund’s benchmark return is 20.80 per cent, the fund has produced an annualised return of 25.93 per cent during the past three years as of November 2021.

Aniruddha Naha, PGIM India Asset Management ― Senior Fund Manager for Equity at PGIM India Asset Management Private Limited, Aniruddha Naha oversees both the PGIM India Mid-Cap Opportunities Fund and the PGIM India Diversified Equity Fund. Naha has more than 18 years of expertise in the equities and debt markets and holds a postgraduate degree in finance and control. His most recent position was Portfolio Manager at Avendus Wealth Management (P) Ltd., where he oversaw two mandates: the Avendus India Alpha Fund and the Mid-Cap Fund, and served as their Head of PMS, Equity. His previous position involved managing three diversified and mid-cap funds with an AUM of Rs 1,600 crore for IDFC Asset Management Company Ltd. He has also worked as a fund manager for DSP BlackRock Investment Managers (P) Ltd. and as a portfolio manager for Mirae Asset Global Investments (Hong Kong) Ltd.

R Srinivasan, SBI Funds Management ― R Srinivasan entered SBI Funds Management in May 2009 as a Senior Fund Manager. He is currently CIO-Equity and is responsible for managing several funds directly. He formerly served as the Head of Equity. He has 28 years of extensive industry expertise and has held positions at several top BFSI companies in the past, having worked with companies like Future Capital Holding, Principal PNB, Oppenheimer and Co. (later Blackstone), IndoSuez WI Carr and Motilal Oswal, among others. Srinivasan has a post-graduate degree in finance from the University of Bombay

Sankaran Naren, ICICI Prudential AMC ― Sankaran Naren is in charge of the investing operations for both mutual funds and the global advising business of ICICI Prudential AMC. He was a key contributor to the creation and execution of the business’ overall investment strategy. He is a well-known supporter of the Indian financial markets and the recipient of multiple accolades for fund management. His views on markets and macroeconomics frequently appear in national and international media. He has held several positions with companies like Refco Sify Securities India, HDFC Securities Ltd. and Yoha Securities before joining ICICI Prudential AMC.

Jinesh Gopani, Axis AMC ― Jinesh Gopani is the Head of Equity at Axis AMC. He started as Equity Fund Manager with this AMC in 2009 and was given promotion to Head of Equity in 2016. Among other funds, he runs and manages the flagship Axis Long-Term Equity Fund. Formerly employed with Birla Sunlife AMC as a portfolio manager, Gopani was in charge of alternative assets for the growth, value and dividend baskets. 

Conclusion

While gathering information about the fund manager is crucial for your investment decision-making, it cannot serve as the only factor. The fund manager is in charge of the scheme’s performance but his or her leaving the fund cannot just be motivated by a change in management. Investors must consider both the evaluation of the fund based on its historical returns and the performance of the fund manager, both of which are continuously conducted by a large number of financial advisers, distributors or investors.