After quitting Axis Mutual Fund, Pankaj Murarka set up Renaissance which runs portfolio management services.
Pankaj joined Axis Mutual Fund as senior fund manager in 2009 and rose to the rank of Chief Investment Officer – Equities. He managed the fund house’s two flagship schemes – Axis Equity Fund and Axis Small Cap Fund. His current firm runs two portfolio management schemes with a mid-cap and a multi-cap strategy. He is looking at a third fund which will run a concentrated portfolio of 10 stocks.
Here he engages in a quick conversation with Ravi Samalad of Morningstar.
What are you betting on now?
In my mid-cap fund, I am betting on Contract Research and Manufacturing Services, or CRAMS, companies in the healthcare space and internet firms. I believe that some of the leading companies in the CRAMS space will emerge from India.
These are still very early days in India in terms of adoption of technology. Broadband penetration should increase significantly in the days to come. India is at the beginning of the evolution of internet business.
I am looking for companies which are taking away business from brick and mortar firms. To cite an example, InfoEdge is one of my picks in the classifieds listing space. The firm operates portals like naukri.com, jeevansaathi.com, policybazaar.com, 99acres.com and zomato.com.
How do you view performance now, given your background in the fund industry where relative performance dominated with respect to peers?
The basic investment philosophy remains the same. It is more about the approach and execution of investment strategy that differs.
In PMS you can take the absolute return approach compared to mutual funds which are relative. Since PMS is meant for evolved investors, the portfolios are concentrated; which means around 20 stocks as compared to a mutual fund portfolio which could hold around 40-50 stocks. Such portfolios are difficult to run in a mutual fund platform because PMS funds can deviate significantly from the benchmark in the short-term, but they deliver outstanding performance over the long-term.
The top 10 stocks account for 50-60% weightage in my PMS portfolio.
With regards to the fees?
For one fund, the fee is a fixed 2.5% while a hybrid fee is levied on the other; which consists of a fixed rate of 1.25% and 20% performance fee on an outperformance above 10%.
Why have you applied for an AIF license?
There are several opportunities emerging in the alternate space which was not the case seven years back. The Alternative Investment Fund, or AIF, industry has evolved and is growing. There is an opportunity for experienced fund managers to build a scalable business in this space.
I plan to launch an India Next Fund next year, which will be a 4-year closed-end fund to meet the growing demand for specialized strategies from high-networth individuals, or HNIs. The AIF will invest in companies which will benefit from India’s economic recovery.
India’s growth has been below potential in the last four years. Now, we are seeing some signs of recovery. India’s growth will pick up in the next three to five years. We will invest in companies which have continued to invest despite the slowdown and have healthy balance sheets. Engineering, capital goods, and infrastructure, corporate banks and telecom will be the biggest beneficiaries of this recovery.
The alternative fund industry is currently where the mutual fund industry was 10 years back. The demand for PMS and AIFs will grow exponentially as markets evolve and sophisticated investors start looking for more customized portfolios.
(As per SEBI data, the total assets under management in PMS grew to Rs 14.49 lakh crore as on February 2018, from Rs 10.23 lakh crore in February 2017. This data includes Employees’ Provident Fund Organisation assets. The AIF assets too are growing at a fast pace. The total commitment raised by AIFs increased from Rs 70,266 crore in December 2016 to Rs 1.41 lakh crore in December 2017.)
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I do expect to see more senior fund managers going solo. Fund managers who have the confidence that they will be able to generate alpha will move out of the industry and set up their own ventures. This is what has happened in United States. Top mutual fund managers have quit their jobs to set up hedge funds.
This trend of experienced fund managers setting up their own funds bodes well for the industry. Investing is not an exact science; it’s a logical science. Active managers will continue to generate alpha.
Do you see consolidation ahead?
Just like the business of stock brokers consolidated with the advancement of online broking, increased compliance and competition, there will be a consolidation among the PMS players.
Many small-time stock brokers are providing PMS services across India. Those who don’t have the resources and talent to sustain the performance in a downturn will find the going tough which will pave the way for consolidation.
