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PMS Providers Hide More Than They Reveal

The sketchy reports that Portfolio Management Services give to investors seem designed to make it difficult to evaluate their services; is it time for SEBI to step in?

Last week, I received an email from an angry customer of the Portfolio Management Service run by a subsidiary of a large Indian bank. This investor had written about the investment performance of the PMS in highly critical—in fact, almost abusive—terms. Attached to this email was a ‘Portfolio Appraisal’ issued by the service. The investment performance of the stocks in the portfolio was terrible—losing 30 per cent in a period over which the Nifty is down 9 per cent, but that’s hardly surprising for a PMS. What shocked me was how utterly useless this so-called appraisal was.

There’s an old business adage that you can’t manage what you can’t measure. By this count, the appraisal seems designed expressly to prevent the investor from figuring out anything about how the service is managing his portfolio. For each of the 17 stocks in the portfolio, the appraisal has the amount invested, the current value, the percentage of loss, and each stock’s weightage in the portfolio

The statement does not mention when each stock was bought and what the actual rate of loss was. This makes it impossible to compare the investments to each other and get any sense of what the portfolios managers were actually doing. There’s also no way of evaluating the portfolio’s performance as a whole, and comparing it to some external standard.

PMS is supposed to be a premium product, with a minimum ticket size of Rs 25 lakh, and every provider claims personalised service and consulting . However, this appraisal has substantially less information and analysis than what is available for free on users’ portfolios on investment websites like ValueResearchOnline and others. At a minimum, investors deserve to have a comparison with a standard benchmark to see how their money has done compared to the markets in general, after deducting PMS expenses.

Clearly, PMS providers are actively interested in hiding this kind of information. Active investors should try and run these numbers themselves. Of course, one hopes that at some point SEBI will get around to enhancing the standards of disclosure for PMSs as it has done for other products.