When The Portfolio Manager Quits…

Just when one thought that the debate on debt funds taking credit risk would be the mutual fund industry’s final major event for the year, comes the news of Anoop Bhaskar’s exit from UTI Mutual Fund. Apart from acting as the Head of Equity, Bhaskar also shouldered portfolio management responsibilities. Bhaskar contributed significantly to the equity research and portfolio management functions at the fund company. It came as no surprise that his stint coincided with the performance of several equity funds looking up. 

Investors in funds which Bhaskar ran, are faced with a familiar dilemma—what should be done, now that the portfolio manager has quit. Should they stay invested, is it prudent put fresh investments on hold, or should they liquidate their investments? 

When a prominent portfolio manager quits, fund companies react on expected lines—‘we have strong investment processes’, ‘the exit will not affect the performance of our funds’ and so on. To be fair, what else can they say? On their part however, investors need to be more circumspect. 

One size doesn’t fit all

At the outset, let me bust the myth that there is a standard course of action to be followed when the portfolio manager quits. Each case is different, and investors need to act accordingly. 

For instance in early 2014, when K.N. Sivasubramanian (CIO-Franklin Equity and portfolio manager) exited Franklin Templeton Mutual Fund, it wasn’t as sharp a break as it might have seemed. For those tracking the fund company, it was evident that Anand Radhakrishnan was being groomed to take over from Sivasubramanian. Furthermore, the presence of a skilled and stable team of managers and analysts meant that investors’ interests were safeguarded. Expectedly, the transition was smooth and on that count, investors had no reason to review their investments.

UTI Mutual Fund’s case is rather different. The fund company has in its ranks skilled and experienced managers such as Swati Kulkarni. However, to my mind, no one stands out as the heir apparent to Anoop Bhaskar. The replacement will have big shoes to fill. 

That said, at present, there is no cause for investors to hit the panic button. But there is certainly a case for closely monitoring developments. It will be interesting to find out who is chosen to head up the equity management function, and if that alters the working of the function.

Change can be multifaceted  

When a new manager takes over, fund companies are known to go the extra mile to convince stakeholders (investors, distributors and advisers) that the fund’s character will remain unchanged. That’s an area which must be scrutinised on an ongoing basis.    

For instance, a large-cap fund which under the erstwhile manager was a benchmark-hugger, could turn into a benchmark-agnostic fund under the new manager. Likewise, a mid-cap fund wherein the erstwhile manager deployed a value-styled approach could mutate into a high-growth styled fund under the new manager. 

In both cases, while the funds’ market-cap profile didn’t change, their intrinsic character underwent a makeover. From an investor’s perspective, there is a need to evaluate if the fund in its new avatar can continue to play its predesignated role in the portfolio. 

In conclusion, the portfolio manager’s exit is an event that merits investor attention. Investors would do well to neither panic, nor be indifferent. Finally, they must seek assistance from their adviser to help gauge the impact of the exit, and decide on the future course of action.