Following our inaugural edition of the "Mirror" report last year (Click Here), we now present our 2nd annual "Mirror" report for calendar year 2015. Like last year, we didn't ask the mirror "Who's the biggest?" We asked, "Who's the fastest?" Which AMCs have grown faster than others? Which AMCs have got business momentum on their side? Which AMCs are growing the fastest is each asset class? And, by applying some common sense logic to bring growth across asset classes onto a common denominator, which AMCs are truly the fastest growing, after normalizing across asset classes?
3 groups - like last year
The format for analysis remains the same - AMCs are placed into three groups - Leaders (top 10), Challengers (next 10) and Aspirers (21 and below). Data is sorted on % growth of AuM over last 1 year, for each group, except the last where it is sorted on absolute growth instead of %, given the wide range of numbers in that group.
We have also introduced data columns depicting growth over 2 years (aggregate growth in 2014 and 2015). The last 2 calendar years have witnessed huge growth - with overall industry AuM galloping by a massive 54% in this period, which is all the more noteworthy, coming as it did after a prolonged low growth phase. Which AMCs have really harnessed these tailwinds better than others? The 2 year growth data offers us some insights on this score.
Will these tailwinds last? Structurally, there seem to be many reasons to believe that they will. Put in a market perspective, put in global concerns, put in the "8 year cycle theory" that suggests that 2016 should be a big down year for markets just like 2008, 2000 and 1992 were - and the near term picture suddenly looks a little hazy. But, that's about 2016, while this article is about the tailwinds of 2014 and 2015 and who grew fastest in this favourable environment.
2 sets of data tables
There are two sets of data tables presented below. The first one is data aggregated across asset classes - i.e Total AuM. The next one drills down 2015 growth by asset class, which allows us to understand business momentum by asset class for each AMC during 2015. We then attempted to "normalize" the total AuM number. If total AuM of company A increases more than that of company B, but company A's growth largely came out of liquid funds while B's came out of equity funds, should we not attempt to "normalize" this to then find out who actually grew faster? We attempted a simple normalizing technique of keeping debt fund growth at neutral weight, liquid fund growth at 50% weight and equity fund growth at 150% weight. The weighted AuM growth is then considered to determine who indeed grew faster than others.
2015 was an unusually good year in that about 50% of AuM growth came from equity, 40% from debt and only 10% from cash. That's awesome, and one has to hope that the trend continues, though prudence suggests that it was indeed unusual. In the context of "normalizing" AuM growth, the low salience of cash funds meant that the tables didn't exactly turn upside down, though some notable position changes did occur nevertheless.
Table 1: Total AuM growth over 1 yr and 2 yr periods (no weights applied)
Table 2: 1 year growth by asset class, with weighted "normalized" growth
Industry level observations
Rising tide is not lifting all boats
Two big growth years are now behind us, but the tale of the large growing larger faster continues unabated. The summary looks shocking in terms of the abysmal growth in the Aspirers group - but to a good extent, that is explained by the one off situation of JP Morgan's huge asset loss in 2015, as an aftermath of the unfortunate Amtek Auto incident. But, even if you take that out of the equation, the big picture of the Aspirers losing share to the Leaders, and even the Challengers losing some share to the Leaders, holds true.
Looking at the 2 year growth numbers across AMCs, it would appear that there are around 30-33 fund houses who are seriously in the race to gather assets, while at least 10 are really struggling, despite favourable tailwinds. Almost a quarter of our fund houses have a lot to introspect about - if a rising tide is not lifting their boats, what will?
The squeeze is in debt and cash segments - not equity
The good news is that the equity segment is not seeing smaller players getting squeezed out by the big boys. Equity flows in 2015 in percentage terms across the three groups looks a little better than the total AuM picture across all asset classes. Evidently, the squeeze is in the debt and cash segments, where size and brand perhaps matter more, as performance differentiation is a lot more difficult to demonstrate.
The debt segment is where the squeeze is the most obvious. You have the top 10, and then from the next 33, only about 5-6 meaningful sized players. We seem to have around 30 relevant players in equity and only 15 in debt.
The Leaders group
The fund house that has harnessed industry tailwinds the best in the last 2 years is clearly ICICI Prudential - topping the 2 year growth numbers on absolute as well as percentage terms - no mean achievement.
Kotak MF and SBI MF have done splendidly in 2015, topping both the % growth tables - actual as well as normalized, indicating high growth in high value asset classes. The "Nilesh" effect seems to have catalysed Kotak MF's growth in 2015, and the company will undoubtedly be keen on building on this momentum going forward. SBI MF's fund performance and higher distributor engagement levels seem to be paying off in terms of faster growth - it has now broken into the 100,000+ crores club, swelling the club size to 6.
In terms of the total AuM numbers - the league tables that seems to matter so much to most large AMCs, the race for the top slot and the 5th slot looks tantalizingly close. Will 2016 see ICICI Prudential displace the long standing No 1 - HDFC AMC? Will SBI MF break into the top 5 league at UTI's expense? The race is clearly on.
A look at the asset class wise growth numbers for 2015 makes interesting reading. ICICI Prudential stands head and shoulders above the rest with an equity AuM growth of Rs. 18,121 crs. Then there is a group of 5 AMCs in the 10,000 - 12,000 crore range, with Kotak and SBI breaking into this "A" list of equity champions that also feature Reliance, Birla Sun Life and FT. IDFC seems to have fallen out from the "A" list, perhaps after Kenneth's move out. HDFC comes in at No 7 with an equity AuM growth of Rs. 6975 crores - which no doubt will be disappointing for the team, given its excellent pedigree and long term track record in the equity space.
In the debt space, the Amtek Auto incident not only impacted JP Morgan AMC directly, but the aftershocks of the incident and the scare on corporate bonds seem to have had a huge impact on FT - the market leader in the corporate bond funds space, which managed an AuM growth of only Rs.935 crores in debt funds in 2015. The bond funds space for some years was dominated by FT in accrual strategies and Birla Sun Life in duration strategies. In 2015, we see two different winners - Reliance and ICICI Prudential have seen the maximum AuM growth of close to Rs. 15,000 crs apiece. 2015 clearly has seen considerable churn in the winners list across equity and debt asset classes.
The Challengers Group
LIC Nomura comes up as an unlikely winner in the Challengers Group at first glance, but gets relegated lower once the filter of normalization is applied, signifying the utility of this metric in determining the real growth champions.
Axis once again is the clear table topper in this group. Given its AuM growth momentum and the current distance between Axis (at 11th position) and DSP Blackrock at 10th, it looks like the race for the 10th spot is likely to be a closely contested one this year - just like the races for slots 1 and 5. If Axis does break into the Leaders group in 2016, it would be a fantastic achievement indeed for such a young fund house.
6 out of the 10 fund houses in this group grew their equity book by over Rs.1000 crores in 2015, with Axis and Tata significantly ahead of the rest. In contrast, only 3 managed to grow their debt books by more than Rs.1000 crores last year.
Religare Invesco's 0% growth in AuM in 2015 is perhaps not as bad as it looks - the company has grown its equity and debt books quite nicely, but has lost assets in the cash space. With the same level of AuM, the business has got a whole lot more profitable. The same story has played out for Canara Robeco in the Aspirers group.
The Aspirers Group
The Aspirers group is all about equity - and there are 6 players who are clearly breaking away from the rest, to emerge as leaders of this group. These include Motilal Oswal, Mirae Asset, BNP Paribas, Edelweiss, Canara Robeco and JP Morgan. All six have grown their equity AuMs by more than Rs.1000 crores each in 2015, with Motilal Oswal running far ahead with an equity AuM growth of Rs.3032 crores. Performance and differentiation in product offerings are what have enabled these six companies to post commendable performance in equity AuM growth in 2015. Motilal Oswal's powerful combination of performance, differentiation and strong communication, and the fantastic business results that it has achieved from this, is a worthy case study for our industry to imbibe.
A word about JP Morgan - which was right in the middle of industry newsflow in 2015 - unfortunately for all the wrong reasons. One credit event - one bad call in the fixed income space - decimated its cash and debt books by over Rs.7600 crores. This was not the first credit event in our industry, and this won't be the last. We've seen a few blow ups earlier, and in most cases, the AMCs concerned picked up the tab, as the reputational risk was perceived to be higher than the cost of underwriting the loss.
A "purist" would argue that this meant that debt funds are one way streets - pass on the gains to investors and absorb the losses. That's not the way a mutual fund ought to operate. Mutual funds are pass through vehicles - and that means that the gains from good calls as well as losses from bad calls should pass through to the investors.
A "practical" person would point out to what happened to JPM's AuM to justify why it is better to absorb losses and not pass them on to investors. The difficulty with this "practical" approach is that only a handful of deep pocketed fund houses can afford to be "practical", the rest simply cannot. On the flip side, the difficulty with the "purist" approach is that JPM's experience in 2015 will likely become a case study of why being "practical" is better. On a total Amtek Auto exposure of Rs.200 crores, the final haircut was 15% or Rs.30 crores to investors. In hindsight, would it have been "practical" for JPM to absorb a loss of Rs.30 crores instead of seeing debt and cash AuM haemorrhage by Rs.7500 crores and an unquantifiable damage to its reputation in the debt funds business? Notwithstanding AMFI's recommendation to SEBI to adopt JPM's segregation process as the norm for any future credit accidents, its tough to see fund houses not being "practical", after witnessing the JPM experience.
Does this mean the debt fund business is essentially a capital intensive business? Should we now have net worth norms that are linked to debt AuM?
2015 Growth Champions
Coming back to the main focus of this article, lets look at who the winners are in each of the categories that we have discussed above. Here then, is the final list of 2015 Growth Champions:
Heartiest congratulations to all the winners! It's a competitive world, and you've proved that you can outrun competition and grow faster than the others. All the very best to all AMCs for 2016! May the best win!
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