Prashant Jain Quits… An Era Ends

In my nearly twenty-year tenure as a research professional, I have witnessed a host of changes in the mutual fund industry. However, among the few constants has been the presence of Prashant Jain at HDFC Mutual Fund. Jain likely holds the record for the longest manager tenure at the helm of an Indian fund. His exit from HDFC Mutual Fund came as a surprise. 

Despite his constancy, in recent times, Jain emerged as a polarizing figure in the industry. While many believed that he was past his prime, others had steadfast faith in his abilities. And for those who came in late, it was hard to figure out what the fuss about Prashant Jain was.

His research-driven investment approach, valuation consciousness, contrarian bent, and laser-like focus on the long-term, are well-documented. However, Jain will likely be best remembered for his willingness to stick to his conviction. 

Jain was willing to endure long periods of underperformance in pursuit of his conviction. When the latter paid-off, his funds would stage spectacular comebacks. Turnarounds like the ones in 2003, 2009, and 2014, cemented his position as first among equals, in the pantheon of portfolio managers.

Then again, conviction can be a double-edged sword. Admittedly, the last few years have been difficult. From 2017 through 2020, Jain’s funds delivered an indifferent showing. Their asset sizes shrunk, and risk-profiles worsened. As the sheen wore off, expectedly both Jain and his funds were severely panned by the mutual fund ecosystem.

And just when he was all but written off, Jain staged yet another comeback of sorts in 2021. Near-term showing suggests that his funds are topping their respective categories.

But there’s more to Jain’s portfolio manager credentials. 

An integral part of researching and rating mutual funds is expressing an unambiguous opinion. Sadly, a large number of portfolio managers are less-than adept at handling unfavorable views. Jain was an exception. He was always respectful of the analyst’s right to express critical views, even if he disagreed with them.

Jain’s conviction in his investment approach also shone through his personal investments. Even when it wasn’t mandatory to invest in or disclose manager investments, Jain invested millions of his personal monies in funds he ran.

Manager meetings are essential to fund research. Unlike some of his peers, Jain never had ‘no-go’ areas for interactions. 

Oddly my last interaction with Jain was some time ago when I bumped into him at an airport. Though we hadn’t met in years, Jain was quick to exchange pleasantries. He came across as the same affable person I knew, optimistic about the future of equities as ever.

His recent struggles notwithstanding, Jain made a sterling contribution to the mutual fund industry by lending it immense credibility. His exit undeniably marks the end of an era.

Go well Prashant!

#PrashantJain, #HDFCMutualFund, #HDFC, #mutualfunds, #investing, #MutualFundsSahiHai

What HDFC AMC must do now...

HDFC Asset Management Company (AMC) is in the news, and sadly, not for the right reasons. If media reports are to be believed, the AMC has been served a show cause notice by market regulator SEBI. The front-running scandal which first surfaced in June 2010 has returned to haunt the AMC, with apparently more instances of questionable trades being uncovered. The popular belief that the matter had been laid to rest when the AMC and its managing director settled charges by paying fines was obviously incorrect.

There is a legal aspect to the episode which the fund house's legal team will undoubtedly deal with. However, to my mind, there's another side—pertaining to the AMC's stewardship—which is even more significant. In the mutual fund business, the importance safeguarding and acting in investors' interests cannot be overstated; likewise, it would be imprudent to undermine the significance of investor confidence and trust. On those counts, now is the time for HDFC AMC to step up to the plate.

The need to act is only accentuated by HDFC AMC's standing in the industry (remember the Spider-Man credo: with great power comes great responsibility). Not only is it among the largest fund houses, in my opinion HDFC AMC easily ranks among the best players in the Indian mutual fund industry. A disciplined investment process and a consistent long-term focus have contributed to the fund house's sterling reputation in no small measure. In an industry where high manager turnover is the norm rather than the exception, the AMC has been successful in both attracting and retaining talent over the long-haul. Performance-linked compensation structures ensure that the investment team's interests are aligned to those of long-term investors. It can be safely stated that the fund house fosters an investment culture rather than a marketing culture.

All the positives notwithstanding, it is disconcerting to hear that there is a likelihood that more questionable trades may have taken place, and that the AMC finds itself on the wrong side of the law yet again. HDFC AMC must assuage concerns of its stakeholders (read investors and distributors). And here's how they should go about doing so. 

To begin with, the AMC must start communicating. Instead of learning about the developments from the media, it would help if HDFC AMC were to communicate with its stakeholders and offer its side of the story. Don't get me wrong: I'm not suggesting that nitty-gritties of the legal proceedings or confidential matters be placed in public domain. But the AMC can and must offer its stance to let its stakeholders know that all is in order. If is as being alleged, questionable trades did indeed take place, then an apology is in order. All it takes is an unambiguous and forthright note from someone in the top brass, which can be put up on the AMC's website.

Then there's compliance; presumably, the AMC has already taken steps to ensure that irregularities such as front-running do not recur. It would help if the same are communicated to investors as a part of the confidence-building measure.

Finally, the AMC must also chart out a plan to compensate investors for losses suffered as a result of the alleged irregularities. The obvious solution would be to credit a sum equal to the loss suffered into the respective funds' assets. It may not be a bad idea for the AMC to go the extra mile, and consider issuing bonus units to all investors in affected funds.

At times in the world of investments, perception is as important as reality itself. No responsible AMC can afford to be perceived as having a cavalier attitude when it comes to investors' monies or dealing with irregularities. Hence, now is the time for HDFC AMC to stand up and be counted!