imgbd CEO Speak

Get ready for the next retail powerhouse

Suresh Soni, CEO, DHFL Pramerica MF

7th October 2017

In a nutshell

Pramerica: among the top 10 asset managers in the world, largest life insurance and retirement player in the world's largest market - US. DHFL: second largest housing finance company in India with a presence in 351 cities and towns across India. When two retail financial services powerhouses get together and then signal their intent with the largest acquisition in the fund industry, you can be sure of a lot more action from DHFL Pramerica in the retail space in the coming years. Suresh takes us through the building blocks that he and his team have carefully put in place in the last 18 months, which will drive growth and retail expansion as the company prepares for the big league in the years ahead.

WF: Our fund distribution community perhaps knows very little about both the promoters of your fund house - DHFL and Pramerica. Let's take DHFL first - few perhaps realize that it is India's second largest housing finance company. Can you please walk us through a brief profile of Dewan Housing?

Suresh: DHFL has been engaged in financing affordable housing finance for over 3 decades and is the only Pan-India HFC with focus on lower and middle- income segment. It is present in 351 locations with significant penetration in Tier 2/3 towns.

DHFL's asset base is close to Rs. 90,000 crores and it enjoys AAA rating from two rating agencies. In recent years, DHFL has been expanding in the broader financial services space and now has active presence in asset management, life insurance, consumer finance and a few other areas.

WF: Pramerica - or Prudential Financial of US is one of America's largest life, retirement and investments companies. Where does it stand in the global pecking order in asset management and what are its core competencies?

Suresh: Pramerica - or Prudential Financial Inc. USA, is a Fortune 500 company. It is a 140-year old financial conglomerate and one of the world's leaders in life insurance and asset management. It is among the top 10 asset management companies in the world, and is the 2nd largest life insurance company in the US.

In India, Pramerica commenced business as a stand-alone entity in 2010. The turning point came in 2015 when it joined hands with DHFL for a 50:50 JV. This combined entity then bought over the business of Deutsche MF in March-2016, which gave it scale.

We are very fortunate to have both parent companies which have very strong retail focus and very long-term orientation. The life insurance business as well as housing finance business are both very long term in nature and very retail focused. This culture and ethos will help us immensely as we seek to build a strong retail presence for our mutual fund business in India.

WF: The take-over of Deutsche MF's Indian business by DHFL Pramerica is perhaps one of the largest deals in this space in the country. What is your mandate over the next 5 years for this merged entity?

Suresh: Indeed, it is the largest acquisition in the Indian fund industry to date. This acquisition was a game changer for us as it gave us scale, widened our product suite and importantly gave us talent required to take this business to the next level. From a pre-acquisition AuM level of Rs.1,800 crores in Feb 2016, we are now at an AuM of over Rs.25,000 crores.

We have two clear focus areas: build a strong investment platform with clear processes backed by competent professionals which can deliver consistent performance across products and second, build a strong retail franchise to take these products to. Over the last 18 months, we have put in significant effort in strengthening our investment platform, driving synergies from the teams of the merged entities, dovetailing the products into a comprehensive suite.

It is heartening to see our products across equity and fixed income featuring prominently in the performance league tables. Additionally, we have a sound PMS business which has more than doubled in AuM in the last 9 months, and where we see significant growth prospects going ahead.

We are now eliciting the support of our distribution partners, to help us scale this platform and reach to many more retail investors across the country. Towards this end, we have added significant talent at various levels of the organization.

WF: The erstwhile Deutsche MF's fixed income capabilities are well known and will no doubt continue in DHFL Pramerica. The equity side of your business is not as well known. How does your firm's equity capabilities stack up in your view? What is the track record of your flagship equity products?

Suresh: You are right. We are indeed privileged to have a very well performing Fixed Income platform. All too often, equity investments garner a majority of the focus while fixed income strategies receive scant attention. As a fund house, we have an equal commitment to both asset classes. We believe fixed income MF offer very good opportunities to clients who are not comfortable with equity volatility. A clear product definition, consistent and disciplined investment process and strong investment performance is helping us expand our investor base.

While we continue to build on our strong presence in Fixed income, in the last 12 months we have seen our equity book double. Our focus on strengthening equity platform has led to significant improvement in equity performance. For example, NAV of our large cap fund has grown 15x in 15 years. It has delivered a CAGR of over 20% over the years, with a very healthy 400 bps alpha over benchmark over 15 years. Our PMS strategy DHFL Pramerica Deep Value PMS has doubled YTD. We are working to to further build on this momentum to enable the funds to reach the scale that justifies their potential and their track record.

WF: DHFL's strengths are in Tier II and III cities and towns. Will your distribution now focus on these centres to leverage DHFL's strong presence there? What will be your overall distribution strategy?

Suresh: Distribution expansion is now a key focus area for us. We are today in 23 locations. We should scale that up to 100 locations over the next 3-5 years. We believe that Tier II and III towns continue to be underpenetrated and offer disproportionate growth opportunities. That said, the industry is poised for rapid growth across the country - urban middle class in metros down to small towns - and we want to participate meaningfully in this growth across all markets.We are also working on the digital front, on easing the customer onboarding and transaction execution experience for our distributors and their investors.

WF: You mentioned your PMS book has doubled in the last 9 months. Can you please take us through your PMS proposition and its differentiation?

Suresh: We have a very credible presence in the PMS space, led by E A Sundaram who heads the piece. He has very rich experience across market cycles and has developed a unique investment philosophy. The overlap between our PMS portfolio and the other popular PMS portfolios as well as top equity funds is less than 20 %, thus providing a scope of genuine diversification for the client. The churn rate of our portfolio is very low, thus minimising the tax liability to the client. Every single company in the portfolio has a long track record. Average age of companies is 60 years. The weighted average RoCE of our portfolio is 30%, and the portfolio PE is around 19 times (FY 2018). We have beaten the benchmark indices in each of the previous 4 calendar years - 2013, 2014, 2015 and 2016.We are seeing increasing distributor interest in our PMS product and I am confident that we will continue to see significant growth in this side of our business.

WF: What are your product and marketing plans? How do you plan to carve out distributor and investor mindshare for DHFL Pramerica?

Suresh: We have a good investment platform that is delivering strong performance in equity, fixed income and PMS - that we believe is the most important building block that can enable us to get distributor and investor mindshare. All our funds operate within a clearly laid down, true to label investment framework.

Being true to label is important- we are very clear about the mandate of every fund and ensure that every fund stays within its brief at all times. This enables us to deliver more predictable outcomes and avoid mistakes that are sometimes made when you don't respect the boundaries of the product you are managing. We believe while performance is important, it is equally important to avoid negative surprises. In the long run, staying true to label contributes significantly to performance across cycles.

We understand SEBI is expected to come out with guidelines around product consolidations. As a platform, we are well prepared for this. Our products are clearly differentiated and operate true to label. We have a few gaps in our equity platform and may consider product launches in coming year.

Distributors are vital catalysts in the growth of any fund house and for us they remain central to our growth strategy. We believe that sound product performance and quality distributor engagement need to go hand in hand for enhancing distributor mindshare. Towards this end, we are working on a number of strong engagement initiatives that are aimed at strengthening distributor knowledge and enhancing their client engagement. We will be unveiling these in the coming months. And finally, we are investing in strengthening our service delivery capabilities to enable us to serve our distributors and their investors better.

Note: For performance details visit our website

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