Wednesday, April 18, 2012

No big hikes, bonus for mutual fund industry staff this year

Four CEO exits in a month, abysmal pay hikes, ban on bonuses and whispers of downsizing - the Indian mutual fund industry is going through one of its roughest patches in a decade.

Fund house managements are taking a hard look at slow AUM (asset under management) growth, scheme underperformance, low profits and rising costs.

Boards of trustees of several MFs are pushing for pay cuts, skipping bonuses, increasing variable component in salaries and forewarning employees of a possible "right-sizing".

According to industry sources, which include views from over half-a-dozen domestic fund houses, and a few leading HR consultants, the best and the biggest domestic fund houses are offering just about 9-12% increments to top performers. Bonus payouts, which are performance-linked, are being kept as low as 12-20% of salaries.

"There's little to reward employees this year," said the CEO of a bank-sponsored fund house.

March and April are important months for fund companies that follow a "two-year lap calendar". Fund houses strive hard to maintain high asset bases and 'NAV levels' in March as it becomes a reference point for the following year.

However, average AUM of the Indian fund industry fell over 2% to 6.64 lakh crore in the March quarter. Asset bases of fund houses like IDBI Mutual, JM Mutual, Kotak Mutual Fund, L&T Mutual and Religare Mutual, among others, dipped 10-35% during the three-month period starting January.

"The sales and marketing departments have not been able to bring in investors; fund managers have also not showcased any extraordinary performance," the person said.

A few corporate marketers have managed to bring in money; they'll be given a 25% bonus and small increment," added the person.

In the bullish years of 2006 and 2007, even mid-sized fund houses paid bonuses in the range of 40-50%; increments were in the range of 20-30% in those years, as per data sourced from various HR consultants.

"Increments and bonuses in asset management companies have fallen significantly this year. Fund houses have failed to grow their assets or put up good fund performance; it's not going to be a very rewarding time for fund professionals," said E Balaji, MD & CEO, Randstad India.

Boards of most fund houses are now trying to reduce their operational costs. Many of them are planning to "cut flab" in their marketing, sales and other support departments.

According to Balaji, most fund houses are only resorting to "selective replacement hiring" to fill up senior-level vacancies. "Mutual fund and investment banking have been the worst-hit trades in the financial services industry. We may see a downsizing this year. Cuts may come initially in out-of-flavour verticals like aviation, mining and renewable energy," said R Suresh of Stanton Chase.

In the last one year, brokerages made news for sacking employees and folding up bases in smaller towns as trading volumes shrank.

The crisis in mutual funds came to the fore with the exit of four CEOs in quick succession. Piyush Surana of Daiwa Asset Management, Arindam Ghosh who headed Mirae Mutual Fund, and Rajan Krishnan of Baroda Pioneer Mutual Fund have resigned in the past three weeks.

Sameer Kamdar, who was supposed to head ASK Asset Management, resigned last week after a two-year wait for Sebi approvals. "We're not sure what's making them leave... the real reasons could be pressure on performance, cost-cutting or differences in strategies," Balaji of Randstad India said.

According to the CEO of a large corporate fund house, FY12 was probably the worst year in the history of funds in India.

"The industry was hit badly by frequent regulatory changes, volatile equity markets, disinterested distributors and outflow of bank money from debt schemes. We missed all our targets last year," he said.


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