WF : What prompted you to consider this career move from running retail sales business at ICICI Pru AMC to the top job at Motilal Oswal AMC?
Aashish : Vijay, thank you very much for having me back where I love to be - if we did not have your medium to communicate to our channel partners, I wonder how we would ever get our strategies and thought processes expressed clearly.
I thoroughly cherish my stint at ICICI Prudential AMC which was exactly 1/3rd of my life. That has shaped me as a person and a professional; almost everything that I have learnt; especially the last four years where I was given the opportunity to handle leadership roles in product development, institutional business and retail business. I must thank my alma mater for this. It gave me a unique perspective; a centre-stage position amidst dual turbulence - capital market vagary and shifting regulatory landscape. In this period I was able to form my own view on how I expect the landscape to shape over the next few years and what role and configuration manufacturers should assume.
Through a series of interactions with the promoters and leaders at Motilal Oswal Financial Services, I learnt that they would grant me an opportunity to work in a "professionally managed entrepreneurial set-up". While I deal with entrepreneurs in form of my IFA friends on a daily basis, people like me are basically "fixed income" by nature. Hats off to entrepreneurship, I don't think I have the gumption that some of my friends have. I still need the "safety net" of a professional set-up even if I do something entrepreneurial and hence this is the best opportunity for me. In every professional's life there is a stage when one feels the need to test beliefs, experiences and hypotheses and play a more concrete role in building or shaping a team, an enterprise, an industry and eventually customer experiences.
WF : As somebody who has seen Motilal Oswal MF more from the outside rather than inside (at least as yet), how do you perceive the AMC? What are its key strengths and where do you see need for more traction?
Aashish : Before I came in, I saw this as an AMC which had made the right beginning by being unique and innovative. I personally don't agree to a philosophy of being better than someone, I am more at peace with playing to strengths and carving out a role for oneself in the overall industry. Recently, at MFRT, Bhubaneswar, I was asked who is the HERO in our industry - is it the manufacturer, is it investor, is it distributor or is it the stock market. I was emphatic in saying that we should do away with the "HERO" mentality and we should all learn to pick our roles and "PLAY TO CHARACTER".
Being a member of Motilal Oswal Financial Services, Motilal Oswal AMC has distinct strength. The most important of them is Equity expertise - runs in the blood. This is one of the very few asset management companies which are backed by a well documented and consistently practiced investment management philosophy of last 25 years. These learnings are documented and published by way of Wealth Creation Study every year since 17 of these 25 years. http://www.motilaloswal.com/Financial-Services/Research/Thematic/Wealth-Creation-Study/-/45 Not only are they documented, there is money riding on them which is manifest in the 10 year long track record of one of the longest running PMS portfolios in the country - the Value PMS; the Chairman of our AMC - Mr Raamdeo Agrawal is renowned as a founder. Since Motilal Oswal AMC as a house is indeed value-biased we have been hosting the Value Investing Forum since 2010. And to promote and create better understanding of the ETF business we have been hosting an educative ETF Conclave since last 2 years.
In a manufacturing business, needless to say ability to manufacture is key; that is where we have our strength. This strength is also manifest in the pole position that the group holds when it comes to advising retail clients, institutional clients as well as FIIs through retail and institutional broking, investment banking, private equity and real estate management.
The other significant strength which is relatively unknown is that as a tradition Motilal Oswal Financial Services has been managing third-party distribution. The broking business is built by the promoters on carefully managed partnerships with franchisees at 1,482 business locations spread across 526 cities and online to over 756,159 registered customers. So if there is an entity which has a long track record of managing third party distribution relationships faithfully it is this.
At Motilal Oswal AMC, we will continue to play to and build on both of these strengths. We cannot claim to be better than the current leaders in what they have been doing for 10 years, but yes we can definitely be unique and bring in a fresh approach to carve out a strong niche for ourselves by being innovative and investor-friendly.
Having been in the PMS and ETF business has meant that connect with large part of traditional mutual fund distribution is low. With the likely launch of our maiden equity NFO, we will build that. As far as product range is concerned; we will make it more comprehensive but we will continue to innovate.
WF : What is the vision for the AMC that you have agreed with the promoters? Where do you see Motilal Oswal MF 5 years from today?
Aashish : We will be happy if we can get a material presence in the equity mutual fund business by way of recognition as an Expert Equity House and a respectable choice for our investors. We would like advisors and distributors to look at us as a business partner and for that you will see our approach as unique in times to come.
WF : How do you see distribution models evolving over the next 5 years? How do you plan to dovetail your distribution strategy to align with emerging distribution trends?
Aashish : Being a relatively late entrant gives us some benefits. First of all, we do not have the proverbial "winner's curse" and we are entering after having seen the latest in regulation, the likely evolution in the landscape. I think two major trends are emerging - 1) distribution is bound to get more and more organised and 2) the demarcation between distribution and advice is likely to get more salient.
The first one has a bearing on how far should a manufacturer like me venture into the distribution space? Motilal Oswal AMC will have a wholesaler's approach on this aspect. I believe organised distribution will have a central role to play in the next round of growth of mutual fund industry and while I would like them to do their job, I would want to stick to my role as a manufacturer - which is to deliver well performing, well positioned, process oriented building blocks that can be fitted into the advice being delivered to the end investor. I have always stated that mutual funds are like prescription drugs and hence the role of the doctor as well as druggist / pharmacist / chemist is indispensable.
By the second statement, I don't mean to allude to investment advisor regulation or the technical definition of advice. With the latest developments on a regular plan and a direct plan, for the moment, one needs to see these definitions something like this. Distributor is one who carries a readymade product to a client where the alpha and the commission are embedded. Advisor is one who carries a solution to the client, plays some role in creating the alpha and hence must receive fee from the client irrespective of what comes from the manufacturer. Retail investors are more likely to be distributor clients in the current environment and affluent and aware investors are more likely to be advisory clients.
If one were to operate with these basic definitions in mind, Motilal Oswal AMC will have a AAA partnership with Advisors i.e. "Aiding Advisory Alpha". PMS, ETFs and the funds we will launch will be such that they can be building blocks for advisors to create their own asset allocations or wrappers and hence create their own alpha. That will enable them to show value add in the client's eyes and hence hope to earn a fee.
For distributors, we will offer readymade products or we will offer readymade wrappers and asset allocators which they can sell as a solution to the end investor.
While this seems like a lot, I think careful and meticulous approach to intermediation can do this job easily.
WF : What are the main verticals for your AMC at present? What are your plans in 2013 to augment these?
Aashish : The AMC has 3 main product lines PMS, Passive (ETF and Debt) and Active Equity.
Motilal Oswal AMC has traction in PMS because even in the boom times we did not come out with a multiplicity of PMS portfolios and pricing structures so the track record is unblemished. We have two main portfolios - "Value Strategy" (large-cap) with 10 year track record and "The Next Trillion Dollar Opportunity" (mid-cap) with 5 years track record. Both of these are concentrated; value biased portfolios with churn ratio less than 20% in a year. PMS with its flexibility on profit sharing, expense ratios and cost structures will be an important vehicle going forward especially where advisors want to recommend long only low churn value biased strategies like ours for a fee.
The second line is that of ETFs, where we have a few firsts - the first NASDAQ ETF (N-100), the first active ETF on Nifty (M-50), and the first and only MidCap ETF on CNX MidCap 100 (M-100). Retailing is an operational challenge. I think thus far the industry has circumvented the ETF challenge by launching feeders, but we were resisting this because launching an ETF and then putting a feeder over it, kills the ETF advantage of low cost. I think with RGESS coming in and likely challenges on MF expense ratios, we will see some traction in ETFs. At the same time, I am now engaged with my team to explore ways and means to effectively retail ETFs. ETFs are an excellent low cost option and especially suitable to advisory practice where advisors would love to have low cost building blocks on which they can create their own alpha. We are willing to provide the wrappers and the advice too provided advisors are willing to take alpha generation in their own hands and rightfully earn a management fee from their clients!!!
The third vertical is Active Equity. We are awaiting approval for our maiden Equity fund launch which is proposed to be named Motilal Oswal MOSt BlueChip Growth Fund. We hope to launch this sooner than later because we believe valuations are still attractive and markets are just getting back to winning ways. The MOSt BlueChip will be a large cap, concentrated, value biased fund.
WF : Your AMC has made a mark for itself in the PMS space and in the ETF space, and is now going to make a more concerted attempt at gaining traction in the open ended equity funds space. Between these 3 verticals, over the next couple of years, where do you see the biggest possibilities for your firm? How might that be different if you were to take a 5-10 years perspective rather than a 2 year view?
Aashish : I think better part of next 2 years will go in creating a clear understanding of our positioning as a fund house in the market. This is because our approach to building a product range and its distribution will be unique. But India as an investment market will see growth in all types of business because of sheer size and diversity - there is place for everyone and every type of offering.
It might sound slightly preposterous but I genuinely believe that we are bound to see growth in all 3 vehicles in times to come though the mix may go in favour of ETFs progressively. We are an Equity house and equity as an asset class in India is yet to come to fore. People don't appreciate that there is more to it than looking only at 20,000 index level and 15 times P/E when it comes to equity. It is common belief that if you bought equity in 2000 or 2007 you were doomed. 5 years is a short period. All said and done even 2007 investments made at the peak have now broken even and 2000 investments made even in technology funds are giving returns.
While equities are an exponential asset, Gold is not. An ounce of Gold remains an ounce of Gold; so for you to make money there has to be a "greater fool". But 1 share of HDFC Bank giving say Rs 22 of profit in FY12 may not remain 1 share and it may start earning even Rs 50 by FY15 at its current EPS growth rate!!! How do you value a "True Blue" BlueChip that grows 30% compounded year on year and what can it do to your purchasing power over time?
Investors are dramatically underweight, let's enter equity first. Even if one enters at wrong valuation, the only thing it does is that it makes the wait longer. Over long periods of time we all know debt just about compensates for inflation but we need more purchasing power in future, not same or lower.
WF : In 2012, we saw a couple of mid-sized AMCs bring in foreign JV partners to support their next leg of growth. Is that a possibility for your AMC as well - especially considering that a foreign partner can widely distribute your equity management capabilities overseas?
Aashish : Yes we are open to any global partner who can bring in strategic value by way of global distribution as well as product platforms. Anybody who can help us exploit and get what we deserve rightfully based on our investment prowess must be considered.
WF : What is your message to your distribution partners as you take over on newer and higher challenges in this new role as CEO of your AMC?
Aashish : I humbly request our channel partners to hear us out and give us a chance on merit. I have seen only AMCs with a strong manufacturing capability and credible people being able to make a mark. We have the right pedigree, right people and track record to be able to manage clients' equity money. And our approach to distribution will be truly a partnership approach, let me assure you it will not be driven by quarterly commission structures and product push strategies. Give us a fair audience and we will surprise you on the positive.
WF : Your "Aiding Advisory Alpha" idea is a refreshingly new approach. All the very best in your new assignment and in taking your new ideas to market successfully.
To know more about "Aiding Advisory Alpha", Click Here