When talking to Naren, what struck me is how much his work is part of his life and identity. And the absolute pleasure he gets from it.
He could not speak on a personal level without referencing the AMC. Having spent close to two decades at ICICI Prudential Mutual Fund, and building it up, I guess that is fair.
This is part of a series where I attempt to understand the behavioural traits and mindset of money managers and investors. At the end of this (slightly edited) transcript, I list the 20 individuals interviewed for this series.
SANKARAN NAREN is the Chief Investment Officer at ICICI Prudential Mutual Fund.
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Tell me about your evolution as a fund manager. You have spent decades in this industry. Seen numerous market cycles. From managing relatively smaller amount to huge amounts of money. This must have impacted you psychologically, mentally and emotionally.
When I look at an institution called ICICI, the evolution was gradual. From managing small amounts of money in 2004 to huge amounts now, it was a continuous process, a journey, it did not happen all of a sudden. It has been a steady growth.
The scale of money management has changed substantially. To manage larger sums of money, one must be conscious of the fact that it has to be managed responsibly and different strategies are required.
If you look at the mutual fund industry between 2004 and 2007, particularly on the retail side, it was predominantly equity. Hybrid funds or balanced advantage funds or multi asset funds did not exist. The industry has evolved.
The real growth in this industry started exactly a decade ago in July 2013. And we were well prepared because we had seen what happened to the world between 2007 and 2009. The Global Financial Crisis was a big learning.
Do you feel the same sense of responsibility as you did in 2003?
Without responsibility, there would be no growth. It is very important to be responsible irrespective of the amount being managed. One must stay responsible on a continuing basis. The strategies would change though.
And your mindset? Would you take more risk or less risk now?
The risk must only be taken at the level of the product.
What makes you stay in this fiduciary capacity? You could be a very successful individual investor. You would have no stress or pressure or accountability to anyone.
Having seen the broking industry from 1994 to 2004, I felt that the mutual fund industry was a much better way to manage other’s money. In the broking industry, I could only be on the advisory side; tell people where to invest but they do it their way. I watched people lose money from 1994 to 1996 and from 1999 to 2001.
When I joined the industry in 2004, I had spent 10 years in stock broking and 15 years totally, prior to joining ICICI Prudential Mutual Fund. I welcomed the chance to manage other people’s money, and ICICI is a good brand.
There’s a thrill in looking after other people’s money, all the way from Kashmir to Kanyakumari, from Dwarka to Guwahati.
Some investors write in. Some I meet socially. Or when travelling. It makes me happy that I am managing a large number of people’s money. When they tell me that they could achieve certain goals because of their mutual fund investment – “I could educate my son, I could handle this crisis in my family…” it is a very happy feeling.
You are always being watched – how do you manage expectations?
Over a period of time, you learn to reduce expectations.
If our funds are doing well, we say we are not going to do well in the future as past returns are no guarantee of future returns.
One advantage of having worked in a single institution for the last 19 years is that you have seen ups and downs. When up, talk about the downs. When down, talk about how we eventually come up. With that framework it is easier.
But it is not easy in the first few years. The first few years were tough.
The year 2007 was one of the most difficult. It was an irrational market. As soon as 2007 was managed, it has been easy. Because you know how to show people that in the long run it has been possible to give a reasonable investor experience.
What gives you sleepless nights?
The biggest advantage is that my investment team has been stable. A good team that has not given me sleepless nights. We have not had credit issues over a long period of time.
I very rarely worry about markets. Markets will go through ups and downs. Markets in India will deliver over the long run. We have an investment process which will deliver over the long run.
My team, my seniors, the distributors have always been supportive. This gives me peace of mind.
At ICICI we work for brand, trust and reputation.
And what do you work for?
Same thing. Absolutely the same thing.
We live in a very polarised world that outrages frequently. In such a scenario where you are constantly watched, how do you maintain objectivity?
By not looking at social media. I think not being on social media gives peace of mind. Commit to a process. Focus on the investment process. Be conscious that you are managing other people’s money and manage it in the best way possible.
It is impossible to be completely objective. There will be articles written that you are doing badly. One has to read it and accept it. But you have to ask yourself: could I have done it better? You have to constantly introspect and keep improving.
In the year 2007 we learnt that investing is not about bottom-up alone, but top-down too. Both impact markets. After that, we did work on it. Keep introspecting. Keep learning from past mistakes. Keep hoping you make new mistakes and not repeat the old ones.
Investing is not a zero-mistake world. Even Warren Buffett made mistakes – Tesco, IBM, airlines. In this industry, no one can say that I have never made a mistake.
What is a bias that you have had to contend with or overcome?
The biggest challenge is that I was always a value-oriented investor. When managing other people’s money, and such huge amounts, it is not acceptable that we run only value-oriented strategies.
So I allowed my colleagues who were not only value oriented to pursue non-value oriented strategies – growth, quality or whatever. Just because I am a contrarian doesn’t mean everyone in my team be one.
This helped a lot because if we were only seen as a contrarian house then we could not have managed so much of public money, to the extent that we are managing today. And my colleagues having the space and opportunity to pursue their styles while creating alpha for the investor was one of the best decisions we made.
You are hugely successful. Everyone knows you. How do you keep grounded.
I have a special child. That has helped me stay grounded. Because you can see the problems every day.
What makes you feel insecure?
The problems associated with my special child.
You bring skill, intelligence and hard work to the table. In the entire scheme of things, there is gut feel, intuition, luck, karma. How do you view this?
I have seen different cycles, euphoria, complete busts – this helps me take certain decisions.
March 2020, as an AMC we would have invested Rs 10,000 crore in equity. In March 2020, people were saying that the world has changed forever or the world will end. That quantum of money invested came out of a vast understanding of cycles. That comes out of a gut feel that market will eventually turn around.
The past understanding of cycles is very useful. Past understanding of how promoters behave. Past understanding of how different companies behave. This all contributes. There was a time, say 20 years back, when my bottom-up knowledge of companies was much better than it is today.
Luck is an integral part of investing. Does luck play a role in 3-month alpha? 100%. Did luck play a role in alpha over a 20-year period of investing? No.
Does luck play a role in life? Certainly. Luck and fate play a very big role in life. All the time.
If you had to start again in your career with all the knowledge you have today what would you tell your younger self?
Become a fund manager, but also have an understanding of artificial intelligence.
Individuals interviewed by Larissa Fernand for this series:
- Prashant Jain
- Sankaran Naren
- Nilesh Shah
- Vetri Subramaniam
- Anand Radhakrishnan
- Devina Mehra
- Saurabh Mukherjea
- Raunak Onkar
- Samir Arora
- Kenneth Andrade
- Rajeev Thakkar
- Aswath Damodaran
- Ian Cassel
- Vishal Khandelwal
- Sanjay Bakshi
- Ramesh Damani
- Jim Rogers
- Ben Carlson
- Mohnish Pabrai
- Christine Benz
