He who own’s the investor’s hand is going to be king
HSBC Global AM, India
WF: Your fund house launched an NFO a couple of months ago – after a hiatus of over 5 years. How has the response been?
Ravi Menon: The response has been phenomenal from our perspective. It is reflective of our wider philosophy of not having funds for the sake of having funds. Multiple funds with the same strategy but having different labels works from a manufacturer's perspective but does nothing from an investor's perspective. So when SEBI rationalized funds, we were very pleased with the regulation. It gave us an opportunity to access the marketplace in certain categories where we did not have an offering.
Coincidentally, it was a time of great uncertainty and volatility across all asset classes be it fixed income, equities or currency. And our new offering, HSBC Equity Hybrid Fund was perfect in terms of its launch timing. It gave us a great opportunity to engage with a much wider set of advisors and distribution partners and as a result, we had a very successful NFO. This is the 3rd largest fund raise in the NFO market in the Indian mutual fund industry in 2018. It was a big boost to our team that we delivered the right product at the right time..
WF: Besides the successful NFO, as you look back at CY2018, what would you count as the significant hits and misses for your fund house this year?
Ravi Menon: We define our business along 3 lines: 1. The domestic mutual fund which is very important 2. The advisory business where we are the advisors to our offshore funds which invest in India and it is a substantial number across fixed income and equity. 3. We are portfolio managers to some of the largest retirement funds in the country.
If one puts that all of it together, at the end of October, it was in excess of 182,000 crores or US$ 24 billion - making us a top five in the country and that is a position that we are definitely pleased about. Continuing and sustaining this growth during this period was important for us and that was one of the big hits from our perspective.
Looking at the NFO from a distribution perspective, we were able to engage with a lot of new distribution partners and the benefit of that was not just on the NFO but in our other funds as well. We saw significant flows coming in our existing equity funds and a key learning is that engagement with investors and distribution partners should be the highest during volatile times such as these.
The other piece has been our digital journey. We have significantly revamped our website, making the information a lot easier to access and the ability to transact cleaner and faster – in 3 steps one can make an investment in 5 minutes. We are one of the very few fund houses that offers UPI based payment mechanism for investments. We have also enhanced our digital capabilities to provide greater efficiencies from an operational perspective for our internal stakeholders.
This year, we also launched our landmark knowledge sharing global platform for our partners that we branded as "India Invest Marathon (IIM)", which was held in January 2018. The objective was to provide a holistic global and local perspective, so colleagues from London and Hong Kong shared our global perspectives and its impact on Indian equity and fixed income market while colleagues in India offered their equivalent India perspective. The event was very well received and we are now gearing up for the 2nd edition of IIM in January 2019 with ‘Global insights for the influential’ as a theme
In terms of the misses, we wish that we could have had a few more new fund launches after the rationalization. However, we tend to be a bit more cautious whilst doing that. So in 2019, we will be more active on that front.
WF: What are your plans for 2019 in terms of products, distribution and marketing?
Ravi Menon: Starting with our distribution partnerships, we want to continue to be the ‘global knowledge partner’ and provide our global and local views backed with data and analytics so that they can better interact with their own investors. We are very clear that distribution partners are our clients and so the content and quality of content reaching them through various means - through website, whatsapp, and email - is a reflection of what their clients in turn would like to receive. There are multiple competing information sources that our partners receive. And it is for us to deliver content such that our partners and their clients can make informed decisions.
In terms of products, we are working on completing the liquidity suite as well as on thematic equities where we are currently engaging with our partners to better identify what we believe should be a long term sustainable strategy rather than a short term flavor of the day.
The digital journey is an ongoing one and the objective is to continually upgrade the experience for all stake holders both external as well as internal.
WF: Distribution is going through a challenging phase as it adjusts to a trail only model and lower trails as TERs get reduced, at least on the larger funds. Which intermediation channels do you see gaining and losing market share in the coming 3 years as players adjust to the new normal?
Ravi Menon: As Satya Nadella said in his book “Our industry does not respect tradition. It only respects innovation”. Whilst Mr. Nadella was speaking of the tech industry this is equally true of financial services though we are fortunate that the pace of change is less severe than say pure play tech companies.
To put things in perspective despite phenomenal growth in the past 5 years; AUM to GDP is still only 11%. The number of unique investors is only 2 crores. So the opportunity is enormous and indeed multi decadal. India has got a relatively low number of advisors relative to our population. It is difficult to call if the scrapping of the upfront model will hamper young people from joining the industry but this is the only business which calls for no or limited capital. This is fairly unique. Scrapping of the upfront fee will hence require some level of short term capital support till such time that the business picks up and trail fees provides a sustainable income. So this is clearly a big change but we do not expect to see the regulator modifying such a decision and so, we will have to live and learn.
On the flip side there is a level of complexity in investing which makes the need for a financial advisor mandatory. So as clichéd as it sounds I do expect to see significant volume growth compensating for this reduction of TER as well as the introduction of the trail model.
And as with all else he who owns the last mile i.e the investors hand will be the king or queen. What is going to be disruptive in a positive way are the new multi-product platforms coming in. E-commerce in India is growing rapidly and more importantly the trust factor has been established very very rapidly. Today, no one bats an eyelid before purchasing online and paying up front for it. This was unthinkable a few years ago. The online aggregators are not driven by the conventional norm of revenue maximization per transaction kind of model. And the uncertainty that this creates is because no one has experience of this kind in the fund intermediation space so far. The objective of the platforms are to acquire customers and build a sticky eco system which will feed traffic to the other verticals. The user interface and experience is excellent.
So the only way to compete is by providing greater value. In this regard I am reminded of the UK Retail Distribution Review interview with retail investors who had no access to personal advisors due to cost issues and were now users of Robo Advisors. And one of then when asked, said that whilst he was happy with the advice, he greatly missed speaking to at least one person who could reassure him that that he was making the right decision. So building that relationship of trust with our clients is the only defense that we all have. Hence I strongly believe that he who owns the last mile i.e. the investors hand will be the king or queen in these changing times.
WF: What is your business outlook for CY19? Do you see business volumes coming down either on account of market volatility or distribution challenges? What are likely to be the key business drivers going forward?
Ravi Menon: No, we don't see any impact on volumes. Even in the current year, we have seen a fairly healthy growth in our retail assets including SIPs. The financialization momentum has just started. To give credit to our industry and AMFI, the drive towards SIP has been phenomenal and there is little reason to believe this trend is going to change given the way our GDP growth is projected.
WF: New investors who have come into debt and equity funds in the last 12-18 months are likely disappointed with the performance of their investments. What is the message you would like to give to such investors and what steps would you suggest distributors take to address their concerns?
Ravi Menon: Equity investors should not come into equity looking for short term gains - at the minimum, one should look at 3 years. Market data validates the point that those who stay invested for the long term genuinely create wealth. One needs to reinforce this message to our distribution partners and investors to stay invested and they will reap the benefits. The message has been understood as we have not seen significant discontinuations despite some fairly sharp corrections in the market. So we continue to be bullish, very optimistic about India, its growth rate and the opportunity for investors to participate in that growth rate.
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