Bringing back the magic of brand Tata
The completion of 25 years, for a fund, is a time to celebrate, introspect and chalk out a plan for the future. Prathit Bhobe, 49, CEO and MD of Tata Mutual Fund, along with some members of the leadership team who had met last fortnight in the swank office of the fund in BKC, the commercial district of Mumbai, would probably have spent a lot of time on introspection and chalking out a strategy for its future and less on celebrations. And rightly so.
One of the earliest funds to have set up shop in the early 90s after private funds were allowed to do so, the fund has not been able to really leverage the strong brand name of Tatas. Tata Sons, which has built some of the best world class companies in the world, has been relatively unsuccessful in building the mutual fund franchise. Tata Sons holds 68 per cent in Tata Mutual Fund, the other holder being Tata Investments.
It is indeed a sorry state of affairs that a vintage fund sporting one of the most respected brands of Tata has not been able to do much since its inception 25 years ago. It does not even figure amongst the top 10 fund houses in the country. Ranked by assets under management, the top five mutual funds in the industry are SBI MF, HDFC MF, ICICI MF, Aditya Birla Sunlife and Nippon (formerly Reliance ADAG).
These funds collectively manage 58 per cent of the industry’s AUM of roughly Rs28 lakh crore. Tata MF has an AUM of Rs56,458 crore, accounting for a mere 2 per cent and is ranked way below at no 13 (see chart). Apart from being ranked way below, the more worrisome problem is that Tata Mutual Fund does not enjoy top of the mind recall amongst either the investment fraternity at large, or distributors.
A lot of hope has now been pinned on Bhobe and his team which is attempting to galvanise the moribund fund house. Armed with an MMS from Wellingkar Institute of Management, Mumbai, Bhobe has worked in the financial sector for well over two decades. Prior to Tata Mutual Fund, Bhobe was a senior manager in ICICI Bank. During his tenure lasting for 11 years he headed the bank’s liability business, including wealth management and the private banking business. Had he decided to stay on he would might well have been a director in one of India’s largest private sector banks.
Prior to ICICI, he worked for eight years at Citibank where he headed the banking distribution vertical. Both organisations are well known for pursuing aggressive growth strategies. It remains to be seen how Bhobe will curb his instinctive, inbuilt aggression with the solid conservatism required in leading a mutual fund. But what really made him leave his comfort zone and make a career move?
More than anything else it was the perceived challenge to leverage the brand Tata in the financial sector which really made him take up the offer to switch jobs. “I always loved the investment business and this gave me an opportunity to get into the product manufacturing side from being a distributor of products,” says Bhobe. “It also provided me an opportunity to build size and scale with a great brand.”
Working with several HNIs, Bhobe was able to perceive the gaps in the products then offered by Tata Mutual Fund and amongst his first priorities was to build a complete suite of product offerings.
In his near 33-month stint at Tata Mutual, Bhobe adopted a four-legged strategy. “Ultimately, it is the performance which will bring investors,” reasons Bhobe. Besides building a good boutique of products and having new people in place for manning them, Bhobe wanted to build a good distribution setup and ink partnerships for enhancing product visibility in b2b and b2c markets. People, products, performance and partnership. The common thread underlying the strategy was to ensure consistency across all the four pillars. “Consistency will really underwrite the success of this strategy.”
“The aim is to be a full-service fund house with products to suit all investors,” points out Anand Varadarajan, head of banking, alternate products and product strategy. An MBA, Varadarajan, 41, was earlier with ICICI and Citibank and joined Tata MF in June 2018. Over the last 18 months Tata MF launched diverse schemes including multi-cap, balanced fund, arbitrage fund and quantum fund. The latter was launched in 2020 just before the lockdown on account of the pandemic. “We were also the first to have launched a Nifty linked private bank fund,” he says.
An exchange traded commodities derivatives multi-asset fund has also been launched. This scheme invests in other commodities beside gold. Likening a fund house to a restaurant business, he points out that just as good quality and a wide variety of food will attract customers and build their loyalty, performance and a good array of schemes will draw investors to a fund. Unlike most funds, equity schemes in the Tata MF fund comprise nearly 50 per cent of the total AUM. Equity investments are stickier as investors normally stay longer with equity funds than debt funds, which are guided more by interest rate movements.
For distribution tie-ups, the normal channels to woo retail investors, corporate and institutional clients, as also major banks, have been beefed up. During the pandemic, it also spruced up the digital channel. Marketing and distribution costs for NFOs have pushed up fees and commissions by nearly four times in the last two years, to Rs3.96 crore. “During the Covid period, in the last six months, we have seen reasonably good growth in terms of inflows. Our digital channels have been hyperactive,” points out Varadarajan.
There has been a fair amount of resentment across mutual fund houses over SEBI’s recent move specifying allocations towards large caps, mid-caps and small caps in multi-cap funds. Varadarajan, however, feels that this is a step in the right direction, rationalising that like in a restaurant, cookies have to be placed in a cookie jar and jellybeans in a jellybean jar.
Beefing up the team through lateral hires
Bhobe has beefed up his team with lateral hires from the industry, hiring around 14 people in the leadership team. It is a diverse mix. Rahul Singh, IIM-Lucknow, was appointed as the CIO, equities. He was earlier with Ampersand Investment Advisors, LLP a private equity fund which aimed at growing wealth for its clients. Singh, who completed two years at the fund, candidly admitted recently that “It has been a hectic journey. While 2019 was a good year, 2020 is a challenging and volatile year. Quite a few schemes of our fund have been in the first and second quartile.”
Since the beginning of the year, Tata Mutual Fund has been actively propagating investing in the midcap and small cap sectors. There are more investible opportunities in these sectors, claims Singh who says in large caps the rally has been concentrated and fuelled by a few select stocks. Admitting that there has been a rotation of sectors and investors’ attention has been focussed on the pharma, digital and chemical industries, Singh says that problems with China have raised interest in Indian companies. “The post-China factor has seen attention veering on manufacturing companies, which are aplenty in the small cap sector.” The next sector which could probably see action is textiles. Post Covid, especially in the last two-three months, more activity has been seen in balanced, arbitrage and multicap, midcap and small cap funds.
Amongst the factors contributing to heightened investors’ activity is the revised outlook on the performance of the company in the coming quarters. The corporate India’s performance continues to surprise on the positive side, amid ample global liquidity and the fact that the lockdown in the post-Covid period has been longer than expected. Cost-cutting measures by the company undertaken during this period has helped it to face challenges better and such measures have also contributed to the bottom line, he says. “We may continue to do marginally better than other emerging markets and this realisation is being shared by FIIs which continue to pump money into India.”
Bhobe has undoubtedly put in place a good team and built a good range of products to meet various investor needs. But what has still to be done is to address the performance part. There is still a gap between the brand strength and the performance. Many equity funds are performing below their benchmark indices across one year, three years or 10 years. Unless they are able to match the fund’s performance, at least with the indices, it will be difficult to convince investors to entrust their savings.
Debt funds – the Achilles’ heel
Becoming too aggressive is hardly a panacea for improving performance. Especially in debt funds. Like a few others, Tata Mutual fund also realised the problems involved in trying to grow too fast. In the IL&FS crisis in 2018, Tata Corporate bond fund, Tata Money Market fund and Tata Short Term Fund had invested in the nonconvertible debentures of IL&FS Financial Services which were identified as red, meaning they had a slim chance of recovery, despite going to the NCLT. The Mutual Fund had no choice but to mark down the exposure by 100 per cent.
More recently, last year some of its schemes like Tata Treasury Advantage, Corporate Bond, had a collective exposure of Rs54 crore to NCD of DHFL. The value of this fund has been put in a segregated account. Mistakes do happen and some fund houses have had to face the ignominy of closing down the schemes which had exposure to such toxic paper.
Getting the magic back
One cannot, of course, judge performance over a short-term period of one or two years. However, for getting the magic back, Bhobe has his task cut out. “We do not have to establish the credential. The magic is inherent in the name itself. What is required is to establish a connect and reach out to partners and consumers, build their comfort levels and tell them that we are with them in good times and bad.” The fund is targeting investors in metros and small cities with Bhobe himself going on many trips to these places. However, with employees drawn from various companies, there is a need to build a common culture and get them on a common platform.
He is also trying to reach out to teams within the 7-lakh plus strong employees of the Tata group. Cross selling products on a common platform is one of Bhobe’s goals. Getting them on a physical and digital platform is the next big thing. Not just the employees but also other investors. Tata MF has been singularly unlucky in retaining talent and has seen a large churn in the leadership team. Before Bhobe joined Tatas, there was a vacuum at the top with no CEO for nearly seven months.
Bhobe says loyalty cannot be bought. People work for organisations and there has to be clarity of vision which has to be communicated across the board. Loyalty cannot have a price. While the new leadership team aspires to be in the top 10 and top five, Bhobe says more than just numbers, they are aiming to be relevant to investors. Being relevant to investors is more important, he says.
Either way there is a considerable distance to be traversed. Being meaningful may be easier if there is consistency in performance; getting AUM to reach the top five is a Herculean task at present. It may be probable but is very, very difficult. Getting a mindshare of investors will depend on how the fund performs. The fact is that currently one can term the efforts as a work in progress. One may have to wait for at least another three years before reviewing the performance card.