Foreign jaunts, commissions dry up for MF distributors

If you are wondering why your neighbourhood mutual fund agent is not holidaying either in the Alps or on the beaches in Maldives or Mauritius at this time of the year, blame it all on the Sensex.
The secular decline in stocks for the better part of this year, coupled with the market regulator Sebi’s move to amend a key clause in the fee structure for mutual funds, has seen fund houses going slow on the incentives they offer to MF agents. But industry officials say this could well be a blessing in disguise as fund houses will now be more prudent with the money they dedicate to distribution.
Over the past few years, the need to score over competition in terms of assets under management was forcing fund houses to come up with innovative ways to keep the top performing agents in good cheer. Besides being paid commissions for the money they bring in, these distributors also got loyalty bonuses and foreign trips as top ups for their performance. But with the benchmark indices heading southwards, investor sentiment has gone for a toss.
New fund offerings have now dried up and freebies to distributors such as trips to London or Singapore are also now being sparingly offered by fund houses.
Industry watchers also say MF houses not being allowed to charge fees over a period of time — called amortisation in technical terms — for close-ended schemes is a key reason for this change. Putting open-ended schemes on par with close-ended ones was the last major reform that M Damodaran, SEBI former chief, brought in, before demitting office.

Kotak Asset Management chief executive, Sandesh Kirkire says that with fresh investments from retail investors drying up and markets ruling flat, it is obvious that “distribution spend” at fund houses has come down. “How much funds spend in the critical process of reaching the investor through the distributor is direct function of the flows,” he adds.
He also points out that Sebi banning amortisation has meant that there is absolutely no difference between new fund offerings and existing schemes, as far as distributors are concerned. So, the incentive structure has to change over a period of time, he adds.
The head of a large national distribution agency says most of the trips that have taken place over the past couple of months were the ones planned a long time ago — ICICI Prudential AMC recently took its platinum category distributors to an all-paid trip to Shanghai. “But fresh trips are not on the horizon anymore,” he quips.
A few local trips on specific projects, he predicts, will be the norm in months to come. Sunil Subramaniam, who heads marketing and distribution at Sundaram BNP Paribas, says earlier fund houses spent extravagantly on distributors.
“Now, there will be more accountability, as in only performers will be rewarded,” he says.

Bank of Baroda signs deal for mutual fund JV with Pioneer Group

The Indian public sector bank, Bank of Baroda (BOB) signed a joint venture agreement with Pioneer Investments Management Ltd with 51% stake in the existing Bank of Baroda Asset Management Co. (AMC) Ltd that currently manages AUM of Rs 41 crore (as on 30TH June, 2008). The AMC will be renamed Baroda Pioneer Asset Management once the deal is complete. The Pioneer Group manages assets worth more than €237.5 billion (as on 30 June, Rs. 13.04 trillion then) and is present in more than 20 countries worldwide. The group is also looking at including an Indian product in the groups international fund umbrella which is distributed across Europe and the US. Pioneer is two times the size of what they were six years earlier and can make investments as required into India, Pioneer is re-entering the mutual fund business in India before in 1993, it had entered into a 50-50 joint venture with the Chennai-based Shyam Kothari family (through ITI, or Investment Trust of India). The joint venture would help the bank enlarge its basket of products to 29 million global customers with existing 1,100 branches in India and plans to open ten overseas branches in 2008-09, more than 63 offices abroad whereas on the domestic front, the bank plans to add 91 branches by September.

Escorts AMC launch Escorts Leading Sectors fund

Escorts Mutual fund has launched Escorts Leading Sectors Fund with the face value of Rs. 10 per unit. The offer opened on 3rd July, 2008 and closes on 1st Aug, 2008. The minimum investment amount is Rs 5000 and in multiple of Re 1 thereafter. The primary investment objective of the scheme is to provide capital appreciation or income distribution by investing in companies from leading sectors, depending upon their growth prospects and sustainability of future earnings growth. The fund will invest up to 70% in equities and equity related instruments with medium to high-risk profile and 30% in debt instruments, government bonds and money market instruments. The scheme will charge an entry load of 2.25% for purchase of less than Rs.5 crore. No entry load will be charged for purchase of Rs.5 crore and above. The scheme offers growth and dividend option. Dividend option will provide with the sub-options of dividend payout and reinvestment facility. It will benchmark itself against S & P CNX Nifty.

Taurus in Expansion Mode

Taurus AMC which is one of the smallest by AUM is planning to expand and compete with 34 players in the Indian mutual fund industry which has the AUM 5.6 trillion in June 2008. The AMC has announced the appointment of Mr. Kumar Nathani who was earlier with SBI fund management is now joining Taurus AMC as the fund manager for fixed income funds from 1stJuly, 2008. The fund house is planning to launch two fixed income funds in the next 12 months and the investment management team is increasing to four people in next two months. The fund house will add at least 130 people to its existing staff which is around 50 and even double investment management team to 12.

IDFC mutual plans India GDP Growth Fund

India's IDFC Asset Management filed initial papers with the market regulator on Friday to launch an equity fund that will invest in firms representing the constituents of the country's gross domestic product (GDP).
IDFC India GDP Growth Fund will invest at least 65 percent of its assets in agriculture, industry and services sectors, the three components of India's GDP, in proportion to their contribution to the overall GDP Growth, the firm said.
The fund will invest up to 35 percent of the assets in debt and money market instruments, the offer document said.

Buffett's Berkshire Has Worst First Half Since 1990

It must be a bear market because even billionaire Warren Buffett's Berkshire Hathaway Inc. has slumped 20 percent since December.

The decline exceeds the drop of the Standard & Poor's 500 Index and marks the worst first half for the Omaha, Nebraska- based investment and holding company since 1990. Price competition has driven down revenue at Berkshire's insurance units, which account for about half of its income.
Berkshire is ``close to getting more fairly priced,'' said Charles Hamilton, a Nashville, Tennessee-based analyst at FTN Midwest Securities Corp., who has a ``neutral'' rating on Berkshire. ``I wouldn't say it presents a buying opportunity right now.''
After reporting record 2007 earnings of $13.2 billion, the 77-year-old Buffett told shareholders in February that profit margins from insurance will drop.
``That party is over,'' Buffett wrote in his annual letter to shareholders in February. ``It is a certainty that insurance industry profit margins, including ours, will fall significantly in 2008.''
Berkshire also has been hurt by the declines of Wells Fargo & Co., American Express Co. and U.S. Bancorp, three of the company's 10 biggest equity holdings at the end of March. Wells Fargo, Berkshire's second-largest holding, dropped 18 percent in the second quarter, while American Express and U.S. Bancorp slipped 14 percent.
Buffett Bulls
Berkshire declined $1,435 to $118,665 at 4 p.m. in New York Stock Exchange composite trading, and is down 20 percent since its all-time closing high of $149,200 on Dec. 10. That exceeds the 17 percent slide of the S&P 500 in the same period. Berkshire spokeswoman Jackie Wilson didn't respond to a request for comment.
The slide hasn't deterred Buffett devotees, who think Berkshire's decline represents a buying opportunity.
``I'd put a new client in Berkshire right now,'' said Frank Betz, a partner at Warren, New Jersey-based Carret Zane Capital Management, which oversees $800 million, including Berkshire shares. ``It's probably the highest-quality collection of individual companies that's ever been assembled. Long slides are not in the Berkshire Hathaway lexicon.''
Berkshire bulls are betting with history on their side: the shares advanced in 17 of the past 20 years. The last annual decline was 3.8 percent in 2002. The company had record earnings last year as Buffett booked a $3.5 billion profit on a $500 million investment in oil producer PetroChina Co., and insurance units made money selling coverage against storms that never came.
`Chaotic Markets'
The decline in financial shares may provide Buffett an opportunity to boost holdings, said Whitney Tilson, a principal at New York-based hedge fund T2 Partners, which counts Berkshire among its investments.
``Where Buffett makes his money is taking advantage of weak, chaotic markets,'' Tilson said. ``The odds that Buffett could do a large transformative deal have gone up substantially.''
Buffett built Berkshire over four decades from a failing maker of men's suit linings into a $185 billion company. He plows revenue into companies whose management he trusts and whose business models he deems superior. The billionaire's Berkshire stake makes him the world's richest person, according to Forbes magazine.
With Berkshire's $35 billion in cash, Buffett can scoop up bargains on beaten-down securities and make acquisitions while near-frozen credit markets curb purchases by leveraged buyout firms, Tilson said.
Bond Insurance
Buffett entered the bond insurance business in December as the largest companies in the industry, MBIA Inc. and Ambac Financial Group Inc., struggled to maintain their credit ratings. CIT Group Inc., the lender that lost about 84 percent of its market value in 12 months, said yesterday that a Berkshire subsidiary agreed to pay $300 million for its portfolio of loans backing factory-built homes.
Tilson calculates the so-called intrinsic value of Berkshire's assets and operations at $157,000 a share. The stock reached intrinsic value in 11 of the past 12 years, Tilson said.
This year's gap emerged amid a drop in commercial property rates from their peaks after Hurricane Katrina in 2005. Property and casualty prices in the U.S. fell 14 percent in the first quarter from the same period a year earlier, according to a survey by the Council of Insurance Agents and Brokers.
Housing Slump
Berkshire, which owns National Indemnity, General Re Corp. and Geico Corp., saw first-quarter earnings from underwriting insurance policies fall 70 percent to $181 million. Pretax underwriting profit at Berkshire Hathaway Reinsurance Group, which sells catastrophe coverage, dropped 95 percent.
Also damaging to Berkshire's earnings is the biggest housing slump since the Great Depression, which slowed the company's building-related businesses, including Acme Brick and Shaw Industries, the world's largest carpet manufacturer.
Consumers fell behind on loans secured by their homes at the fastest pace in two decades in the first quarter, the American Bankers Association reported today.
Buffett says the U.S. is mired in ``stagflation,'' a period of slowing economic growth and accelerating inflation.
``We're right in the middle of it,'' Buffett said in a June 25 interview. ``I think the `flation' part will heat up, and I think the `stag' part will get worse.''
An economic recovery isn't ``going to be tomorrow, it's not going to be next month, and may not even be next year,'' he said.
Tilson and Carret Zane's Betz say they'll wait. Berkshire gained 26-fold since 1988 in NYSE trading -- a return more than three times greater than the S&P 500.
``I sleep well,'' Tilson said. ``It's not going to double overnight, but we think it will in five years, which is a 15 percent compounded annual rate. It's the stock you want to own.''

Reliance Mutual eyes presence in UAE via BOB

Reliance Mutual Fund has joined hands with Bank of Baroda UAE for the distribution of its schemes through their branches in the Gulf Co-operative Council region. 

In UAE, Bank of Baroda is the only Indian bank having full fledged banking operations, with six branches which includes Dubai (2 branches), Abu Dhabi, Sharjah, Ras-Al-Khaimah and Al Ain. They also have two customer service centers at Jebel Ali and Mussafah. In Oman, BOB has three branches. 

“Changing investment habits has now turned our attention towards quality distribution. The situation is in a way a reflection of the increased acceptance of our mutual fund schemes among our overseas investors. The pie is widening and hence the decision to tie-up with Bank of Baroda to ensure we reach all our customers,” said Sundeep Sikka, Deputy CEO, Reliance Mutual Fund. 

“The tie-up is an extension of the distributor relationship between Reliance Mutual and BOB in India. We recognise our distributors as the most important link between the investors and the company. In order to grow this number we saw Bank of Baroda as an ideal partner to help achieve our goals,” added Sikka.

Mirae ties up with Saraswat Bank for fund distribution

Mirae Asset Global Investment Management (India) on Thursday announced its tie-up with Saraswat Co-operative Bank for distribution of its mutual fund products. 

Mirae Asset plans to expand its reach, especially in the smaller towns, using the extensive branch network of Saraswat Bank. 

In turn, the move would facilitate Saraswat Bank customers to invest in a range of equity and debt schemes of Mirae. 

“This tie-up provides us with an important platform to offer innovative products to the large base of Indian investors. In view of Saraswat Bank’s commendable presence in the smaller cities and villages (153 branches in 5 states), we strongly believe this partnership will add significant value to both of us,” said Arindam Ghosh, chief executive officer, Mirae Asset. 

S.K. Banerjee, managing director of Saraswat Bank, said, “our bank has assigned highest priority for earning fee-based income by distributing third party financial products and services. We have in the past successfully tied up with various insurance and mutual fund houses. Mirae Asset is the latest in this respect.” 

Banerjee added, “the bank will utilise its vast network of branches across five states to distribute their mutual fund products to customers. This tie-up is believed to bring up synergies of both the financial organisations.’’ 

In the last couple of months, Mirae Asset Mutual Fund has grown both in terms of the number of branches opened as well as its employee strength. 

“Since inception in November 2007, we have opened 23 branches across the country and have employee strength of over 140,” said Mirae’s Ghosh.

Nomura Asset seeks Asia expansion

Nomura Asset Management, Japan's largest money manager, is looking to expand into retail fund markets in Asia, its chief investment officer said on Wednesday, as it seeks to increase its overseas exposure to fuel growth.

Asian asset managers such as South Korea's Mirae Asset are increasingly looking beyond their borders for growth. Last month, Nomura announced it would take over the management of the Japan Fund in the United States, billed as the world's oldest fund focused on Japanese equities.

But once high-flying regional stock markets, such as India and China, have sharply reversed course this year, falling victim to a weakening global economy, a continued global credit crisis, and increasingly, the specter of inflation.

But Nomura Asset is banking on the long-term growth potential for the region, as a handful of other Asian asset managers also bet that they can translate expertise gathered in years of operating within their borders to markets abroad.

"We would like to go into the Asian retail market," Takahide Mizuno, CIO of the asset management unit of Nomura Holdings (8604.T: Quote, Profile, Research), told the Reuters Japan Investment Summit.

Mizuno noted the expansion into Asia would likely start in countries where it has already established offices, pointing to South Korea, Singapore, Hong Kong, and Malaysia as targets.

Nomura Asset aims to grow overseas on its own, but in China and India, the fund may seek joint ventures or other alliances, Mizuno said, citing them as examples of countries "with unique cultures and unique regulations."

Nomura Asset had 24.3 trillion yen ($229.2 billion) in assets under management as of March 31.

It had previously said it was aiming to raise that to 43 trillion yen by March 2011, with two-thirds of the growth to come from its domestic retail business and the rest from its institutional investor business, mainly from overseas. 

TANKING MARKETS

After posting five consecutive years of double-digit growth, the MSCI index of Asian stocks outside Japan .MIAPJ0000PUS has dropped some 20 percent so far this year, and is down about 29 percent from a record hit on November 1 2007.

Though Mizuno predicted difficult short-term conditions, he sees long-term potential in markets such as India and Vietnam, citing their economic growth potential, and predicted they will soon again become darlings of foreign investors.

"At some point in the future, India will become a candidate for an overweight position," said Mizuno.

"Vietnam will revive as a major investment opportunity," he added.

The Ho Chi Minh Stock Exchange is among the worst performers in Asia this year, having fallen more than 50 percent as the country deals with double-digit inflation.

Nomura Asset announced last month it would start managing the 30 billion yen Japan Fund, marking its full-scale entry into the U.S. retail mutual fund market.

Nomura Asset, which has plans to grow that fund to about 100 billion yen, will start with Japan-focused funds and then expand its product lineup to Asia-wide funds, Mizuno said.

Other Asian funds have also talked about their global growth strategies, seeking to emulate fund firms such as U.S. giants Fidelity and Franklin Templeton that have successfully expanded abroad.

But analysts have also said the going may get tough. Mirae Asset, South Korea's biggest asset manager, launched its first Indian product earlier this year amid great publicity. It has raised less than $25 million so far.

Pradeep Kumar, Fund Manager- Equity, Lotus India Mutual Fund

Lotus India AMC is a Joint Venture between the Fullerton Fund Management Group (Fullerton) and Sabre Capital Worldwide (Sabre). Both Fullerton and Sabre have been recognised for their knowledge and expertise in emerging markets in Asia. Alexandra Fund Management (AFM) is the sponsor of Lotus India AMC. AFM is an affiliate of Fullerton. Both Fullerton and AFM are wholly owned by Temasek Holdings (Pte) Ltd., Singapore. Having received approval from SEBI to launch an AMC in July 2006, the company launched its first product – Lotus India Liquid Fund in November 2006. The fund manages over US$2bn of assets.

Pradeep Kumar, Fund Manager- Equity, Lotus India Mutual Fund has more than 10 years of experience. He is a CFA charter holder and has 8 years of experience in Fund management and equity research. He started his career with First Global as an analyst, he moved to Way2wealth Securities, as a Senior Analyst. He was the fund manager for 3 years with DBS Cholamandalam Asset Management Company Ltd. Prior to joining Lotus India Asset Management Company Private Ltd., he was Fund manager with ABN AMRO Asset Management India Ltd.


Speaking with Anil Mascarenhas and Yash Ved, Pradeep Kumar says, “There is a misconception that banking is a rate sensitive sector.”


With oil prices rising, what impact do you see? 
The oil prices have been driven more by financial interests of various participants rather than demand–supply equations. I don’t think that the world has changed to such an extent that oil prices double in a short span of time. A lot of speculation is taking place. It would be foolhardy to hazard a guess on oil prices with expectations ranging from US$100 to US$200. We believe oil prices cannot last higher for long because ultimately demand-supply equations will prevail. 


India sure faces a problem due to high oil prices. Being a net importer, country’s financials will deteriorate to that extent. The current account deficit is widening and the inflationary pressures are already here for all to see. If oil price goes to the feared levels of $200, it would obviously be negative for the Indian economy. At the same time you have to remember that with India expected to grow at 7-8%, it remains one of highest growing economies as compared to the world economy, which is growing at 2-3%. We can’t look at India as a three to six-month-old story. There are structural changes happening in India as a whole. There will be negative headwinds for some time and there will be phases when most sectors are firing on all cylinders. The economy has the potential to grow at the rate of 7-8% for a long time. Some serious reform measures will accelerate the growth further for the Indian economy.


Given the political situation, what kind of expectations do you have on the reforms’ front?
For the last 10 years, most political parties have indicated that reforms would be there. The speed of reforms may be faster or lower than expectation. So the bottom-line is that reforms are here to stay, pace may vary. 


Which are the sectors you are bullish and bearish?
We are bullish on Banking & Finance, FMCG, Media and Telecom. We continue to remain bullish on sectors, which are domestic demand-driven. We are bearish on commodities and metals. On IT services, we are negative. There may be some spurts due to rupee depreciation. We think business strength counts more than mere currency fluctuations, which are still not clear.


Banking stocks have got pounded and you are still overweight on the sector? 
There is a misconception that banking is a rate sensitive sector. We do not subscribe to this view. In the last fifteen years, the banking sector has grown in multiples of real GDP growth. This includes loan growth, deposit growth, bottom-line growth, net income growth and net interest income growth. The other misconception is banking sector will be affected as Net Interest Margins may take a hit. Here, one has to understand that banking is a pass through sector. If there is any increase in cost of funds, banks increase the lending rates. The valuations too are very attractive. PSU banks are available below book value. Private sector banks are available at less than two times price to book ratio. Sector’s ROE ranges from 14 to 22%. The stock price movement in recent times is a knee jerk reaction.


You have a banking fund too. 
Recently, we have launched Lotus India Banking Fund. The investment objective of the Scheme is to generate long-term capital growth from a portfolio of equity and equity-related securities of companies engaged in the business of banking and financial services.


What kind of cash levels are you sitting on?
We don’t believe in holding cash. The cash levels maintained are more to handle redemptions if any and some small churns in the portfolio. We maintain cash level of 3-5%. We believe our investors have already made their asset allocation and taken a decision to invest the amount given to us in equities. We don’t have to take any asset allocation call. Our expertise is to invest in stocks which we expect to do well. 


By when do you see inflation coming down?
Inflation is much higher as it is close to 11.5%. We believe inflation would remain in double digit for the next 3-4 months. 


What are your expectations from the first quarter numbers?
I think quarterly numbers will be better than expectations. In the last two to three months, expectations have scaled down so corporate performance would be better than what people now expect. 


What are the changing trends as far as investing in MF is concerned?
As an industry we are in better times. From what we speak to others in the industry too, redemptions have not been much this time round. In the last five to six years, investors have a lot of choices to invest across funds. 


What is your advice for retail investors?
The volatility and uncertainty in the stock market is a part and parcel of the game. This painful situation is unlikely to remain for long. Retail investors should take advantage of the weakness and invest with a longer term view.

Source: indiainfoline.com

Reliance Mutual Fund eyes inorganic growth overseas

Kolkata, July 2 (IANS) Reliance Mutual Fund is eyeing inorganic growth overseas but not at home, a top company official said here Wednesday. Speaking at the launch of SIP Insure, a mutual fund product, Reliance Capital Asset Management chief executive Vikrant Gugnani said: “We are looking for inorganic growth abroad, but not in India.”

The company has set up a 100 percent subsidiary in the UK, Reliance Capital Asset Management UK Plc., for which it has bagged the investment management licence, he added.

Despite the volatile situation in the domestic capital market, Gugnani seemed confident the mutual fund business would grow in India.

“We have seen 30-40 percent increase on systematic investment plan (SIP) sign-ups from March till May 31,” he said, adding Reliance Capital signs up around 60,000 SIPs in a month..

Its SIP asset under management till May 31 stood at Rs.3.5-Rs.4 billion, Gugnani said.

Canara Robeco MF Files An Offer Document With Sebi

Canara Robeco Mutual Fund filed an offer document with Sebi to launch Canara Robeco Financial Opportunities, Retail Consumption & Entertainment Fund (F.O.R.C.E Fund).

It is open-ended equity scheme. The objective of the scheme is to provide long-term capital appreciation by primarily investing in equity and equity related securities of companies in the Finance, Retail & Entertainment sector.

The investors will have the choice of two plans i.e. retail and institutional. Each plan will have two options viz. dividend and growth option. Dividend option will further offer dividend payout and reinvestment facility.