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BW Businessworld

Moving On To The Fast Track

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Last year, Fidelity's average AUM in equity funds remained flat, but positive, in a market that lost about 10 per cent and the industry's equity assets dipped by 7 per cent these days, Ashu Suyash, country head of Fidelity Worldwide Investment, is busy meeting officials from the Securities and Exchange Board of India, distributors, the board of Fidelity Mutual Fund that sits in Bermuda and, at times, with the chairman of Fidelity International, who works out of the Boston office. Since the announcement in March of L&T Finance buying Fidelity Mutual Fund, Suyash's efforts have been directed at a smooth transition.

2. HDFC Mutual Fund
3. Canara Robeco Mutual Fund

It is an irony that this year's Best Fund House in the Businessworld-Value Research study of the mutual fund industry — Fidelity Mutual Fund — is shutting shop after less than seven years of existence. However, in those years, it managed to build a strong franchise and business that steadily saw its average assets under management (AUM) grow to almost Rs 8,800 crore as on 31 March 2012, with close to 2 million folios and a network of 2,700 distributors.

"People and processes have resulted in consistent performance and this has been the mantra for building a strong franchise," says Suyash who feels solid performance is what attracted investors to the fund. "Our focus was consistent performance, such that our investors could sleep easy at home and not be worried about their money. We wanted sticky money and money stayed with us during good as well as bad times."

Suyash, an ex-banker, knows the importance of staying engaged with her customers and distributors, whatever be the market condition, and this helped her retain investors' confidence. "One has to understand that we have not even completed seven years in business and of these, for three years, we have been in a bear market. In fact, during the bad times, we stepped up services — we increased training and investor education, and were in constant touch with our clients. As a result, our investors did not ask us about the value of their assets, which was hugely comforting. Even if someone did ask, with value being over Rs 10 per unit, we did not see redemptions," she says.

The results were evident. Last year, Fidelity's average AUM in equity funds remained flat, but positive, in a market that lost close to 10 per cent and where the equity AUM of the entire mutual industry dipped nearly 7 per cent. 
In the fixed income category, too, Fidelity attracted ‘sticky' money. The strategy was to introduce exit loads, unheard of in the industry. Says Shriram Ramanathan, portfolio manager for fixed income at Fidelity Worldwide Investment: "Clearly the focus was to garner retail money and this helped in achieving a stable investor base. Though the going was slow, it was steady growth." The result: from a 15 per cent contribution to the total AUM in early 2010, now 30-35 per cent of the managed assets are from fixed income.

In 2011-12, all of the AMC's offerings got shortlisted as top-rated (4- and 5-star) funds, pulling down last year's winner HDFC Mutual Fund, which has 83 per cent of its funds in top-rated category. Canara Robeco Mutual Fund came third in the pecking order with 60 per cent of its funds in the highest range.

To The Next Level
So, why exit when the going is good? "The next Rs 9,000 crore in AUM requires that we broaden our reach, localise the team and product offerings. The Fidelity management was not willing to compromise on its global model and that is why they decided to shut shop. It was not the losses, but henceforth growth would have been restricted. It does not make sense to run a business in maintenance mode — it is not good for business as well as for people who want to be associated with growth," says Suyash.

The industry, too, has a similar view. "Fidelity's funds were considered stable," says a senior industry source on condition of anonymity. However, "it had to pay the price for being a standalone," he adds.

As of FY11, Fidelity Mutual Fund had posted close to Rs 300 crore in losses. Despite this, there was huge interest among players who lined up to buy out the mutual fund.

According to market sources, though L&T Finance was able to clinch the deal by paying Rs 550-600 crore, there were other fund houses too willing to pay close to Rs 700 crore — names of HDFC Mutual Fund and the new entrant, Pramerica Mutual Fund, are mentioned.

"The reason our board accepted L&T Finance's bid is because they fit the bill in all aspects — value system, investment philosophy and people. Things like how our clients would benefit, was there any huge overlap between the schemes of the fund houses, were considered. We believe our performance reflects the merit of our bottom-up stock-picking strategy and they (L&T Finance), too, follow the bottom-up approach rather than the top-down. Besides, they were willing to absorb all our people into their workforce," says Suyash.

With L&T Finance's reach, marketing and branding, Fidelity may have found a partner who will put it on the much-wanted high-growth trajectory.


(This story was published in Businessworld Issue Dated 30-04-2012)