Why is Hdfc amc a success in the listed space? Well to start with there are not too many listed asset management companies. The only other player is Reliance Nippon Asset management company – which suffers from the poor performance of the Adag group. I am making a forward looking speculative statement – in September when the name changes to Nippon Asset management (or whatever else) suddenly many people will wake up and change the PE for this company. It will still be only the second player – AND THE ONLY FOREIGN owned listed asset manager.

What will happen in the asset management space? It is difficult to say, but it is time that the regulators accepted that economies of scale are not really being passed on to the end customer. There will be niche players who will occupy some space like the Exchange Traded Funds, etc. who will have volumes – and thus be willing to work on smaller margins. Given the unrelenting pressure on fees, captive selling by banks, dramatic fall in bank sales, bank RM walking away with assets to become entrepreneurs are all changes with which the industry will have to grapple with. If I were a sales head of an amc I would be worried that I can’t sell a “successful IFA” story to a well qualified 22 year old and attract that talent. Retaining talent is a far more difficult task, but this industry does not attract the best any more. The talent it attracts in 2019 is much less than in say 2001. A warning bell for any business. Banks do not find the margins good enough. Big aggregators are suffering attrition of their top IFA.

This will give a great opportunity to good fund managers – after all you do not need Rs 500,000 crores to start with. A good niche player with Rs. 150,000 crores in assets is more likely to attract talent – in fund management and in fund distribution. The big players are far more vulnerable to the move to passive management and AIF – especially if I want a Long-Short strategy fund – that may not be available in a mutual fund. We may even see leveraged AIF, AIF with stock lending as the main business, etc. The smaller guys do not have enough money in large cap funds, so their loss will be minimum. Franklin Templeton, PGIM, Nippon, Mirae,  can bring a lot of international products, but so can Standard Life, Prudential, etc. That would be another interesting space to watch. Niche pure Indian players also exist – DSP, Kotak, PPFAS, Quantum, etc. who may also have some multi pronged strategies- and will be creating their own sales an fund management styles. NJ as a distributor will find it difficult to attract and retain IFA, but the consolidation in the IFA space could see some IFA going into the welcoming arms of NJ.

One big advantage that some of the biggies like Hdfc, Icici, and SBI have is the huge distribution arms – and the sales figures prove it. This power can’t really be duplicated, but Axis, Yes Bank, Bandhan, etc. will surely try to duplicate the model. However not having one “own” bank is likely to be a big advantage for the newer Amc with superior performance. Ability to attract talent – if Hdfc can lose a rising fund manager to PGIM, surely Sbi, Birla, Uti, I Pru all are vulnerable to talent poaching. This can happen in both fund management and distribution. Good news for employees and distributors.

The small managers that thrive will boast (attract, train and retain) top investment and research talent, effective sales and marketing departments, and “brilliant ability to collect, collate, and use data analytics ” The big firms will dominate thanks to their “superior” sales and marketing, advantaged access to intermediaries, “complete and dynamic” product lineup, and scalable technology and operating model. However the big firms will lose talent to younger amc with more sensible paths. Today big funds seem to think that size alone will keep them at the top. That attitude will have to change. I hear from the IFA community that there is no attempt by some of the big asset manager to even TALK to individual IFA with say Rs. 30 crores in assets. Sounds surprising? shocking? Welcome to the world of arrogance. Will they lose assets? well your guess is as good as mine. The early indicators are not so great for the Goliath.

The Regulator in any business speaks the language of the strongest player. So if Irda sounds like Lic, it is easy to see what SEBI will sound like. There are tremendous restrictions on how an Amc can engage with the distributors and how they can be compensated – this is a typical moat creation. However technology may be able to overcome some of these difficulties and a lot of new business could come in the “direct” mode.

Interesting space. Keep watching this space.