ING Investment Management is one mutual fund that has put a strong thrust in the portfolio management space. Its PMS revenue increased from 17 per cent (2008) to 81 per cent (2011). Put that in perspective after noting these facts. In 2009, HDFC AMC earned 21.61 per cent of its overall fees from PMS. Within two years it’s PMS and advisory fees contribute to just 12 per cent of its revenue. The PMS revenue for Kotak Mutual Fund decreased from 11.28 per cent (2008) to 2 per cent (2011). While a number of the smaller AMCs tend to get most of their revenue from advisory and PMS, ING Investment Management stands out for two reasons. One is that a massive 85 per cent of its revenue comes from this source (PMS and advisory), the second is its unrelenting focus on quant products.
Quant products launched in the PMS space are still unavailable to the general public via mutual funds...
In my experience, it’s not wise to introduce an unfamiliar product directly at the mass retail level. Typically, a new financial product tends to follow a cycle. It’s introduced amongst the super HNI segment where it passes its first test and takes roots. This can take two to three years. Next, it tends to get introduced to the broader HNI segment followed by the mass affluent. And finally, retail. The journey from inception with super HNIs to acceptance at a retail level can take between five to seven years.
When do you plan to introduce it at the retail level?
We have successfully completed the first three years in this journey and believe that the idea of quantitative investing has gained acceptance. It should be soon when retail investors also begin to see and understand it and allocate, say, 5-7 per cent of their overall portfolio to the quantitative style. In a few years, I see the situation changing. When the sector opens up and pension funds come in, then quant as an investment strategy will take greater shape, since globally it’s a bit hit with institutions. In developed markets like Singapore, where investors have been exposed to these varying styles of investing, we are already advising offshore funds based on quant investment style for investing in India. In about 18 months since launch, we have seen assets grow to over Rs 40 crore.
Will SEBI’s move on increasing the minimum amount to Rs 25 lakh affect your business?
Not really. That move was long overdue. The minimum used to be Rs 5 lakh, which really is not that big a deal anymore since wealth in India has grown rapidly over the past 10 years. Our minimum entry ticket, depending on the distributor, was Rs 10 lakh and Rs 25 lakh earlier.
How many clients does ING Private have?
In the last three years we have added nearly 13,000 clients in the PMS space. Today, we believe we have the largest PMS client base across asset managers and brokers in India.
Is it more lucrative to ensure that the bulk of your revenue comes from PMS?
The margins on an equity product in the fund management space are the same as an equity product in the PMS space.
Then why such a focus on PMS in your AMC?
We looked at introducing a new investing style and narrowed down on a target segment which would appreciate such products. External factors such as improved market sentiment and risk appetite coming back helped the products get recognised soon after their launches.