A few hours ago, The Independent reported that investors have pulled out billions from U.K.-based asset manager Richard Woolnough’s funds.
Interestingly, the focus of the article was not dismal performance but the impact this would have on his pay check since fund managers in the U.K. earn money from management fees based on the assets they look after, as well as performance fees. Though the dip in Woolnough’s remuneration seems to be following a trend (£17.5 million in 2013 and £15.4 million in 2014), it certainly should not put a dent to his lifestyle.
Back home, fund manager compensation is also in the news, but for other reasons. The mutual fund regulator, Securities and Exchange Board of India, issued a circular on March 18 regarding the disclosure of executive remuneration of asset management companies, or AMCs.
From the very next financial year, AMCs will have to disclose the annual salaries of senior management on their websites under a separate head called ‘Remuneration’. This applies to the CEO, CIO, COO and all employees of the AMC whose annual remuneration is equal to or above Rs 60 lakh per annum.
Though AMCs will not be too happy with this, the regulator seems focused on promoting transparency in remuneration policies so that executive remuneration is aligned with the interest of investors.
Last year, in a news report in the Economic Times, Aditya Agarwal, Managing Director, Morningstar India, emphasized that "Investors should have the right to know how much the CEO and fund manager is paid. If they are paid on the basis of the assets mobilised...” He went on to say that the salaries of key management personnel should be linked with the performance of the schemes.
Salaries are a key component of the expense ratios of funds. Morningstar’s Global Fund Investor Experience Report reported that only the U.S. and Netherlands have asset-weighted expense levels below 1%. India, Canada, Italy, and Spain all report expense ratios of more than 2% on equity funds. This report evaluated 25 countries in four categories that are weighted to calculate the overall grade: Disclosure, Regulation and Taxation, Fees and Expenses, and Sales and Media.
SEBI chairman U K Sinha referred to this report in an interview with the Economic Times and emphasized that the regulator is not interested in micro-managing the fund industry but has been advising the players time and again to implement best practices.
According to the SEBI circular, these are the disclosures required:
- Name, designation and remuneration of Chief Executive Officer (CEO), Chief Investment Officer (CIO) and Chief Operations Officer (COO) or their corresponding equivalent by whatever name called.
- Name, designation and remuneration received of all employees of MF/AMC whose:
- Annual remuneration was equal to or above Rs 60 lakh for that year.
- Monthly remuneration in the aggregate is not less than Rs 5 lakh per month, if the employee is employed for a part of the financial year.
- The ratio of CEO's remuneration to median remuneration of MF/AMC employees.
- MF's total AAUM, debt AAUM and equity AAUM and rate of growth over last three years.
The above information should be disclosed within one month from the end of the respective financial year (effective from FY 2015-16).