Leo Puri was appointed as the Managing Director of UTI Asset Management Co. Ltd, the oldest mutual fund in the country, in August 2013. With no head for two years, UTI had, by then, lost considerable market share. Mr. Puri, who has extensive experience of leading strategy and transformation engagements in the context of economic reforms and deregulation, was entrusted with the task of revamping the company to reach a leadership position.
In this interview with The Hindu, he says that UTI is determined to regain its lost glory. Edited excerpts:
UTI Mutual Fund stands at fifth position in the industry. What is your strategy to achieve leadership?
Leadership position comes from three things – trust and respectability that the organization enjoys; the size; and profitability. All three dimensions are important. There was a dent in the trust and respect in the case of Unit Scheme 64. UTI was able to repair this, thereby regaining the trust of the investors.
On size, the industry has grown a lot in the last decade, and the UTI did not fully participate in that. That was partly because we concentrated more on equity-oriented products, while growth happened in debt. Further, we concentrated on retail when growth happened on the institutional side. We have now realised that, and are taking measures to rectify the same.
On profitability, we are one of the most profitable AMCs in the industry with a high mix of equity in our products. In three years, we would like to be viewed among the top three. In five years’ time, we will establish ourselves as the pre-eminent asset manager in the country.
At your Golden Jubilee celebration recently, SEBI Chairman U K Sinha emphasised the need for revisiting the ownership structure of UTI MF. What are your comments?
The SEBI Chairman was referring to the shareholding pattern, which was formulated in 2003 when UTI AMC was created. At that time, the shareholding was made indirect by distributing among four shareholders. There was always an understanding that it was an interim arrangement. It was recognised that a conflict of interest arises from the shareholding pattern as the shareholders of UTI also have their own separate asset management companies. We know that measures were initiated in 2006 and 2007 to offer an exit to the shareholders along with plans for listing UTI AMC on stock exchanges, and T Rowe Price was inducted in UTI as a step in that direction. That process has not yet been completed.
SEBI Chairman was mainly highlighting that. The original intention, which was to ensure that UTI shareholding over time would be held in such a manner that there will not be a conflict of interest between the sponsors and the AMC, should now be fulfilled.
Given that, it is a shareholder issue. Our role is to mainly execute the chosen strategy. Our aim is to ensure that UTI will remain an independent asset manager. It is important for the industry that an independent institution such as UTI remains a board-governed organisa- tion. Personally I believe a listing on stock exchanges would be helpful, but it is a matter for stakeholders to determine. We look forward to their decisions. Our interest as UTI AMC is to ensure that the outcome is one that supports our strategy of continuing to play a relevant role in development of the capital markets.
In the absence of a leader for the last two years, UTI has lost considerable market share. What steps are you planning to recover lost ground?
In the last two years, because of the institutional strength of UTI, we witnessed only modest erosion in our market share.
In that period, the momentum was lacking. Currently, it is being restored. However, there was no breakdown in the institution. The energy, momentum, aspiration for leadership and the will to succeed have also come back. This is an institution which has a mind like a leader and thinks like a leader and not like a follower.
Geographically, we are strengthening our presence in the Beyond 15 cities. We need to grow in urban and semi-urban areas. Even the large metros are deeply under-penetrated in terms of mutual fund ownership. As a percentage of household savings, even urban households are under-exposed to mutual funds. We need a two-pronged strategy to ensure that the share of urban areas and metros continue to rise, and, at the same time, capture the growth that is happening outside the top cities. Banks and insurance companies have shown us that there are opportunities in these places. The distribution is in place, and we have to rebuild the trust of the customer in mutual funds.
The last thing we need to do is look at the products. The industry, as a whole, is over-complicated with its products offering. So, there is a need for simplification. We are looking at our own product portfolio. Now, we are focusing on realignment of products, segments and product positioning. Our brand has been very strong, and it continues to be our strength. We now need to connect with the younger generation, with people under 40. That is a brand positioning exercise we have opted to do during the year.
What are the issues currently ailing the industry?
The mutual fund industry is a fragmented industry. It has been fighting for the same distribution pie rather than focusing on growth. Any industry that goes through such phase will be dysfunctional. Mutual fund industry should focus on growth instead of competing for a shrinking pie. Macro-economic growth, a certain amount of consolidation and the combination of these two will bring a better industry structure. We are the only truly large independent asset manager that is not linked to either a bank or a corporate house.
Around the world, asset managers stand independently and remain distinct pillars in the financial system. That is for two reasons — to ensure unbiased corporate governance and unbiased resource allocation. In developed economies, there are only a few banks and corporates as owners of asset managers.
As we have debated on governance of banks, perhaps there is a need for debate on the ownership and governance of asset managers and for resource allocation to be solely driven by professional decisions. In India, there is a need for growth of a healthy financial system where we will have an independent asset management industry. UTI is, perhaps, better positioned than any other institution, to play that role. Asset management is becoming a significant part of the industry, where you can raise capital. So, appropriate governance is needed in it to strengthen our capital market.
With the change in minimum capital requirement — from Rs. 10 crore to Rs. 50 crore — for asset management companies, do you see an inevitable consolidation in the industry?
I believe consolidation is healthy, and the increase in net worth is a right decision. Some believe that asset management is a capital-light business. Any institution which is garnering public funds should be prepared to compensate for stronger regulatory oversight. You need capital for that. We have an equity market and a bond market which are very thin. Sometimes, there will be extreme market dislocation and the AMC has to absorb the shocks. So, you need capital to deal with shocks.
Consolidation has already started, and it will continue. We are open to opportunities, and are positioned to seize them when they come our way. So, we are positive on consolidation.
What are the new growth areas that you are actively focusing on – like, say, pension schemes?
We are very excited on retirement and pension opportunities. It is a highly regulated and closed market, but is slowly opening up. We are not seeing it as a near- or medium-term opportunity for profitability. Another area we would like to focus on is to mobilise global investors, both institutional and retail, to Indian debt and equity markets.
Over five to ten years, we will see global investors accessing the Indian markets. We would like to compete with global asset managers for India products in a more significant way. We would also pursue private equity and alternative asset space in India.