WF: What are ITI Group’s areas of activities within the financial services domain and why has the Group decided to enter the MF business now – at a time when competition remains high and margins are getting squeezed?

George: ITI group is an innovative, conservative and emerging financial services conglomerate which has interest in various financial services businesses. We are present in institutional & retail equity research and broking, asset-based lending (fintech SME lending, Vehicle loans etc), investment banking, alternative investment funds (long - short equity, Real Estate, Venture Capital) and Asset Reconstruction business. Each business is having a well experienced professional as the business head who drives the business and most of the businesses are getting nurtured with long-term growth plans and objectives.

ITI was the promoter of Pioneer ITI Mutual Fund which was the first private sector mutual fund in India. The said ITI holding company has changed to strong hands and is now the promoter of ITI Mutual Fund in India. We are entering into mutual fund business with a very long-term perspective. Current promoters of ITI group have proven business acumen over the last 30 years in various fields. Looking at the macro economic situation of India and the demography the country has, we believe next 10 years would be the golden period for investing and also for asset management business. As Indian GDP keeps compounding at ~12% nominal growth rate (7-8% real GDP growth and 4-5% inflation) we could comfortably reach a USD 8 trillion economy in next 10 years. This will mean large pool of money will be chasing various asset classes, at the same time financialization of economy will keep happening and therefore the quantum of money which could potentially chase financial asset classes would be significant. We believe it is always lucrative to start a business in a downcycle than starting in an exuberant industry situation. As you have mentioned competition is high, margins are getting squeezed and most of the industry participants are going through a difficult time on various counts, so this poses a great opportunity for a new player like us to start the business. We have zero legacy, have a fresh long-term thinking, have put tight processes for debt and equity based on the learning from Industry players mistakes and also from good work. So, looking at the long-term macro prospects and the current industry situation we believe there is a big opportunity to set up a mutual fund which could create a strong investment management platform and offer a differentiated investment experience for investors.

WF: What level of assets would a new fund house require to break even and how long do you think it will take you to get there?

George: A new fund house needs to achieve approximately 10k crores equity assets to break-even the mutual fund business, assuming the cost structure is not bloated.

WF: What are your launch plans and what is your product pipeline going to look like for 2019

George: We are planning to launch 4 products in CY 2019 starting from April’19. We have great product innovation plans and you will see more investor centric products coming from ITI Mutual Fund stable in years to come. Our plan is to make our product basket very relevant for investors and also make sure not to confuse investors with too many products. SEBI has done a good job in rationalizing mutual fund product categories. Our objective is to offer right product to right set of investors at the right time and this will be our key focus.

We think it will take 4-5 years to reach the break-even level and in next 5 years our aim is to establish our brand, strong processes, enable our partners and investors experience a fantastic low volatile wealth creating experience rather than running behind AUM. Since we are thinking of a very long-term business and promoters are keen to do a very investor friendly business 5 year period is a very short span in the investing journey.

WF: What is your distribution strategy going to be? How extensively do you propose to engage with the IFA community?

George: We will have an omni channel model (Retail and digital) for mutual fund distribution. We are setting up 30 offices in top 30 markets and Retail distribution (IFA & ND) is our key focus in these markets. In T-30 markets we will work very closely with the IFA community and our objective in these markets would be to be an enabler to IFAs so that they can sell more and add more clients. In B-30 markets we will focus more on digital strategy as we are not planning to have our own physical infrastructure.

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WF: You have rich background in equity asset management. How do you propose to differentiate your equity strategy in this competitive market?

George: Yes, we as a team have rich equity fund management and long drawn investing experience. We also have significant equity research experience in-house and have tracked various sectors independently. Mr Pradeep Gokhale a seasoned fund manager with 23 years’ experience has joined us from Tata Mutual Fund as Senior Fund Manager and Head of Research.

We have framed a strong investment philosophy for ourselves to efficiently manage funds. We strongly believe in bottom up research and that helps in identifying sound businesses and buying them at appropriate price points.

Our investment philosophy:

• Our philosophy is highly influenced by Mr Howard Marks and Mr Charlie Munger
• Think of long-term investing and use short term volatility to accumulate
• Aim at risk adjusted returns than simply focusing on returns
• Understanding the business thoroughly before buying, this gives conviction in periods when the stock keeps going down.
• Always spend time and energy on good quality businesses and not on low quality mediocre businesses (minimum 13% cut-off on ROEs on all core holdings)
• Buy good quality stocks at reasonable valuation and not at any valuation,
• Select companies with good track record of management and promoters
• Buy businesses with low leverage,
• Always understanding the company and its business environment. This is important than focusing on broad macro trends.
• Catching winners are important but our other motto is “if we avoid the losers, the winners will take care of themselves”, this also can be practiced only if we analyze the companies thoroughly on bottom up basis. Avoiding mistakes is more important than catching the winners because if we lose capital then making money becomes a difficult proposition.
• The macroeconomic situations are good to know and help you to understand what is happening around the world but I haven’t come across anyone who has got the forecasting on GDP, interest rates, inflation, sectorial trends etc. consistently right over my 27 years of personal investing experience. So, my faith in macro forecasting has been coming down year after year and my belief in bottom up investing kept on increasing and as of now, we believe in it fully. Macro understanding may help to prepare and not predict.
• Look at credit worthiness of debt papers in true spirits, bottom up equity research & credit research helps in this aspect, go beyond ratings given by rating agencies. If we keep looking at the interest rate trends or broad macro trends, we will surely miss what is happening in the underlying company where you are taking exposure to. So, doing thorough research eg: looking at the financials of the company, cashflows, management track record, promoters leverage etc are very important.

WF: What is the mandate that your Board has given you in terms of how to build out your business?

George: We have created a detailed business plan for the next 5 years, taken it to the board and got it approved. Promoters and the Board have given the freedom to plan and execute well. The broad mandate is very clear that we have to hire the best people from the industry for all functions, do business ethically and in a transparent manner, create very strong processes for all functions, focus on omni-channel model – Retail & Digital, offer only relevant products to investors and don’t confuse them by offering many products, sell the right product to the investors at the right time and align the sales, marketing, products and customer service departments accordingly ie. It means we may need to sell certain products at certain time when the market is looking very attractive and may be need to de-sell certain products at appropriate time when the market is looking frothy or in other words help our partners and investors to practice asset allocation. Above all the mandate is to generate superior risk adjusted returns ie target superior returns by taking below average commensurate risk in the funds.

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