There was a time, not so long ago, when I Pru was regarded as a winner in the debt space, but just an "also-ran" in the equity space - a competitor who participated in the race, but was never really in with the chance to be a winner. There was a time, not so long ago, when I Pru was seen more as a sales led organisation, and less as a trusted wealth creator. Its always difficult to drive a fundamental change in any organisation - and many times more difficult if you are trying to do this in a company as large as I Pru MF, which was already a market leader in the industry. It is to Nimesh's credit however that he has pulled off a remarkable metamorphosis of his company from its "also-ran" status in the equity space and in the mindshare of quality advisors, to its current position of a leader in both. Nimesh shares with us what went into this metamorphosis - what went into making I Pru an equity winner and also what's going into cementing I Pru's position as a trusted partner for quality advisors.

WF : Your fund house is now at number 2 position in terms of gross sales of equity funds in recent months, and the gap between number 1 and 2 positions is now quite small. You have also managed to double your equity AuM in the last 4 years. This is indeed a far cry from the situation you inherited a few years ago. What are some of the key changes that you and your team have made, which has helped build this leadership position in the equity space?

Nimesh : First of all Vijay I must thank you for providing this platform for us to relay our thoughts and inform on our actions to our esteemed distribution partners. Through the last 3-4 years my team and me have interacted with you and used your medium to communicate to everyone on what we are changing at our end in our thought processes and actions. This has been mainly in the areas of our approach to distribution, our product positioning and investment prowess. I think saliency for us in the equity space has been built because of our efforts on consolidating our product range and our investment performance backed by processes. Today in every category of equity and fixed income you will find an ICICI Prudential Mutual Fund scheme ranked amongst the top performers. There was a point in time when we could have been seen to be a sales, distribution and marketing led firm but in the last 5 years, my team and me have made a deliberate attempt to function as an investor-centric AMC where hand-on-heart I can state that 100% of the AuM is working in the final interest of the investor. The first thing that we did was to have a Product Head who reported in to the CIO instead of the Head - Sales and that made a dramatic difference. We changed our product and sales communication such that distributors could identify our flagship products clearly and we stopped our sales team from "recommending" any schemes. We believe that the portfolio that the distributor / advisor creates for the end investor should meet the investor's objectives and our funds should be picked to play a pre-defined role in that portfolio. We will work towards ensuring that we are the best at playing that role. As a result of this thought process, we do not have product-wise sales targets and even if we run a sales promotion campaign for the distribution, it is centred on an idea for a category of schemes. We never "push" or "drive" any one scheme or product.

Today, our entire equity AuM beats relevant benchmarks and my team's target is to ensure 90% of the AuM at all times is within 4 and 5 star ranking in ValueResearch publications. We have focused on manufacturing because with distribution getting more organized, I feel the future belongs only to strong manufacturers as there will be no easy sale.

It was extremely heartening to read this in one of the ValueResearch publications recently and I quote, "This seems to be a rare AMC that has undergone a complete change in its approach after the 2008 financial meltdown and for the good. The fund house has transformed from a product and sales powerhouse to have a performance-linked funds' line-up."

WF : Earlier this year, your team launched an innovative campaign called "Ask For More" which encouraged distributors to enhance their business from their clients by following a more needs based approach. How has this initiative panned out? Have you seen any change in the kind of business coming your way consequent to this initiative?

Nimesh : The manifestation of "ASK FOR MORE" was in two areas of daily functioning for my company's engagement with distribution. First was our endeavour to encourage the distributor to register SIPs that are aimed at a definite financial goal and the second was to encourage a larger number of distributors to carry fixed income funds like Regular Savings Fund, Capital Protection Funds, Multiple Yield Funds and Corporate Bond Fund to retail investors to get a larger share of their wallet. From our side it was an earnest effort to get attention to these two aspects so that business improves for everyone and we function in the right direction. We have seen huge success on this front because our SIP instalment value is 50% higher than industry average today. While we had a low base of SIP input value per month we have been able to roughly double it in the last 2 years. Every month we have over 1,000 IFAs as contributors to inflows in our retail debt products and the asset under management of these schemes have a holding pattern of at least 50% from IFAs as distributors.

WF : When you look back at 2012, what are some of the biggest wins for your AMC and what are some of the areas you would have liked to see a better show?

Nimesh : It is linked to the above initiative. I think getting retail fixed income money has been a key achievement and increasing the value of the SIP input has been another. Our Regular Savings Fund is now just short of Rs 3,000/- crs, our Corporate Bond Fund has crossed 1,100/- crs, our Cap Pro / MYF book has crossed Rs 2,000/- crs.

You have been kind enough to highlight our prowess on the equity front and while I can slowly see our equity AuM share rising, I feel we could have done better to attract more inflows in equity. Firstly, I feel sad to note that in line with our expectation the stock market did revive this year but investors have been using this uptick to book profits on older assets. When we were actively soliciting investments into equities in 2011, we did not get encouraging response and investors missed a great opportunity to make an entry for the long haul. Industry equity net sales performance has been dramatically negative. Our share of inflows has been rising and we have lost much lesser on redemptions compared to our AuM share. We have outperformed by increasing market share, but all said and done it is not a happy situation on the equity front overall. Secondly, I am not happy that despite a stellar 10 year track record in Dynamic Plan and over 8 years in Discovery Fund we have not been able to scale these funds to be amongst the larger funds in the industry even though we actually have a track record that is comparable or better in some cases.

Generally speaking all participants seem to be painting a negative picture on equity. But it is entirely linked to past experience and it has no bearing on the future. We are about to turn the corner. The faster we are able to communicate this, the better it is for all of us.

Talking of some lesser known areas, we have done some re-organization on the PMS front, rationalised the product range, made some necessary changes in the configuration of the investments team and performance on the PMS front has been top notch. Our Real Estate PMS launched in 2007-08 has started to return money from vesting of investments and we have successfully raised another RE PMS aimed at commercial preleased properties. We are near closing in our endeavour to raise monies under our RE VCF launched earlier this year aimed at mezzanine debt funding to the real estate sector.

WF : What is your business outlook for 2013? What are the key drivers that can build momentum at an industry level in 2013?

Nimesh : While we communicate investment advice based on future expectations as I have alluded in your previous question, investors' decision making does indeed get influenced by recent past experience and that is what determines their risk appetite. From that perspective I am confident 2013 will be a year where risk taking appetite in general will rise. Confidence levels will improve because all the money that came in 2007 peak has also broken even and in recent past investors have made some handsome returns on their fixed income investments. With interest rates starting to decline, equity valuations looking reasonable, and likely bottoming out of the economy we are in for some good times. We expect fixed income funds to deliver better returns than what they have already been delivering. On the other hand, while equity markets may remain volatile due to news flow and events that we are all aware of; overall equity will bottom out and commence the next big move. To sum up we are on the themes of Long Duration for Debt, and a combination of Volatility and Value on the equity front.

WF : What are going to be your key focus areas for 2013?

Nimesh : For me manufacturing is the core business and we will continue strengthening our investments function under Naren's able leadership. We are not planning any new fund launches and we would like to work closely with distribution to scale Dynamic, Discovery and Focused BlueChip because I feel 2013 will be a supportive year from capital markets perspective.

The other area will be on persistent distribution engagement. This year we did roadshows in many cities where me and my senior leadership team on sales as well investments side briefed IFA partners on the markets, our processes and philosophy. We will continue doing the same.

2013 is likely to be a challenging year keeping in mind changes in the distribution landscape brought about by new regulations but I would like to reiterate to all our distribution partners that as highlighted by you in this article, we have just started to reap the benefits of focusing on being a pure play investment manufacturer. Whatever the landscape changes may be, we believe that our expertise lies in manufacturing and hence we will always need distribution support to place our products into investors' portfolios in the appropriate slot.

WF : There is increasing talk of tax breaks for pension products from the MF. We now have the RGESS too, which has finally been notified. How meaningful would these opportunities be for the MF industry and its distributors?

Nimesh : While I do not have any visibility on these developments on pension front, in many a country managing monies of the insurance and pension industry is a large business for the asset management industry. There are very many asset managers globally who work purely as manufacturers for other retail asset managers, pension funds or insurance companies. While we do not know the path, we are indeed hopeful that these developments do come up and we can focus on capitalizing on our manufacturing capabilities which today are underutilised. I am sure Naren and his team will be happy to manage larger and longer term corpuses and this will definitely make optimal utilization of his team's skills and capabilities.

RGESS is a welcome development for us to focus on, so that from long term perspective we introduce new entrants to the capital market investing culture.

WF : Given SEBI's push towards small town penetration with simple products, do you see large players like yourselves giving serious thought to tied agency models that can sit alongside the current open architecture distribution model?

Nimesh : Global experience with tied agency models is mixed at best. We would rather focus on manufacturing because last 5 years experience tells me that if your product is managed well, delivers performance and you have good sales servicing and relationships with distribution you can garner a larger share of business. Also, I believe that platforms and national distributors will have a larger role to play because for the long term benefit of an agent it is always better for him/her to align with a multi-product, multi-provider, full service platform rather than an individual manufacturer.

WF : How do you see fund distribution evolving over the next 3 years - especially in the context of regulations that seem to be promoting both advisory and distribution models as well as a do-it-yourself model?

Nimesh : I think the regulator has envisaged the wide ranging needs of a complex country like ours. To that extent I agree with the need for both. This is probably the first time we will learn to appreciate the term "agent" as opposed to "investment advisor". One makes products available to investors and the other represents investors and scans the market for relevant solutions. The former has limited upside considering that revenue is limited to that received from the manufacturer, the advice is embedded in the product and hence there is always the fear of the client not valuing the service rendered. In the case of the latter i.e. advisor, one is representing the investor so revenue has unlimited upside which comes from charging the investors, advice is deliberate; not embedded and one is expected to be agnostic to the manufacturer.

Let me assure you that there is space for everyone and for every type of offering. While distribution will have to work out their own preference for an operating model, even AMCs for the first time will be made to choose amongst strategic alternatives. Everybody will not be able to do everything!!! While I know such landscape changes are challenging for all market participants, we are living in exciting times and we will emerge better and stronger at the end of this challenge.

WF : What are your key messages to your distribution partners at this juncture where they are absorbing the latest wave of regulatory change and preparing to align their business models appropriately?

Nimesh : I would like to assure the distribution partners that ICICI Pru sees itself as a company with fund management as our core expertise. Hence, we need the support of distribution partners to garner assets on our behalf so that we are left to do what we are best at - i.e. managing ICICI Pru Focused BlueChip, Dynamic, Discovery, Top 100, Regular Savings Fund, Corporate Bond Fund and the rest of our well performing schemes. We will work closely with you to prepare for the new emerging landscape. Also, they need to take note and draw encouragement from the fact that for the first time the regulation as given benefits to the industry with a clear diktat that the monies be spent on educating investors and re-invigorating distribution. I suggest that the next 1 month be spent by all in revisiting their business models in form of segmentation of clients, practice management, advisory practices, client servicing etc. Engage with your fellow colleagues and peers and your AMC partners to sharpen the saw!!!