Nimesh Shah, the CEO of ICICI Prudential Mutual Fund, was in an ebullient and talkative mood when Value Research met him for an informal chat at the Sheraton Park Towers one afternoon at Chennai.
And why not? ICICI Prudential has been a much-celebrated fund house this year, with all its equity funds rising to the top of the Value Research rankings, its funds regularly winning awards and its equity assets zooming to ₹40,000 crore. That's a dramatic turnaround from five years ago, when the fund house was known more for its marketing prowess and institutional business than for equity fund performance.
So I kick off with the soft question - Most fund houses have only a couple of their equity funds at the top of the rankings. How did ICICI Prudential manage to get all its equity funds up in the top quartile?
Nimesh says that the improvement came about after the firm reset the key objectives for its (equity) fund managers and analysts five years ago. "The target we gave our fund managers and analysts was that they should beat the benchmark by 300 basis points over every 3-year period. We decided not to look at 6 month or 1 year performance and our dialogues with our fund management teams are now entirely on 3 year performance. Once the incentives of the managers were aligned to investor interests, we saw the results".
As the conversation warms up, we order our food; I opt for sambar vada and he for curd rice Madras-style.
Be defensive
So, which of this diverse menu of funds would he ask investors to buy today? After the mandatory disclaimer about different products suiting different people, Nimesh is honest enough to say that his call is to be defensive. "At 18,000 (Sensex), we went out and urged investors to buy, buy, buy. Valuations were low and it was the time for aggression. But today, after this rally, price earnings multiples of companies have expanded sharply while nothing much has happened to their earnings. So my call would be that you put money in the Dynamic Fund or the Balanced Advantage Fund. These are our missiles that seek out opportunities with low risk", he adds colourfully.
He is also not gung-ho about mid-cap stocks. "Last year, mid-caps were at a 50 per cent discount to large-caps. We felt they offered good value and asked people to buy them. Today that discount has vanished. Mid-caps are up a 100 per cent. I feel investors should not look into that past return to invest in them."
But can any mutual fund wean Indian investors away from 'assured return' products?
"Transparency to my mind is the most beautiful part of a mutual fund. Yes, there is a price to it. But I don't think mutual funds should give up this practise of providing a CAGR return. Instead of trying to copy other assets, we should educate people to look at CAGR", he says.
Why Closed End?
Given all this talk of investor-centricity, why did ICICI Prudential flag off this trend of close end equity funds last year? Isn't it unhealthy for investors? Nimesh is quite prepared for this salvo and lists out the good things about closed end funds. They allow a fund to own a compact portfolio with concentrated bets, they can own mid-caps with lower liquidity and they prevent investors from rushing to 'book profits' the moment they make a 15 per cent return.
Seeing that I'm not convinced, he elaborates. The idea for the first closed end fund - ICICI Pru Value Series I- hit him when his CIO Sankaran Naren visited the US in August/September last year. He found that global investors were quite bullish on India at 18000 Sensex levels, while investors back home were totally pessimistic. This convinced him that the time for 'value investing' was then. "But if we asked investors to come into our Value Discovery Fund then, no one would have done it. There was no excitement in the market. New Fund Offers help to create that excitement".
His money
Over coffee, we shift gears to his personal investments. Where does he park his money? An aggressive investor, he parks 75 per cent of his portfolio in equities. And 100 per cent of that equity money is ICICI Prudential funds. He catches my slightly sceptical expression and adds "This is exactly the question that I get asked whenever I hold a meeting at Ahmedabad. I have shown them my account statement. I can show it to you too" he offers, quite seriously.
So does he do SIPs? "No", is the surprising answer. "Every month, I allocate a chunk of my salary to two equity funds. Last month, I invested in ICICI Pru Dynamic and ICICI Pru Target Returns". He explains that his choices change based on market conditions. When the Sensex was hovering between 18000 and 25000, Value Discovery and the Value Series I & II were his choices. "So I forgot to tell you that, I too have put money in the closed end funds" he adds, cheekily.
On fixed income, Nimesh is fully invested in long duration funds. "My debt managers believe that rates will go down by 1.5 to 2 per cent over the next 3 years. Yes, we have been wrong in that view so far. I was taken apart on by our distributors on that call. But I believe it will pay off", he explains.
He hasn't been bitten by the real estate bug yet and continues to live at his father's home at Sion in Mumbai. "I feel people get unnecessarily carried away by real estate returns. If you actually see over the last 12 years, even the best piece of property would surely have not beaten the ICICI Dynamic Fund. How can an asset that earns 2 per cent (rental yield) deliver good returns?" he asks.
He admits that he used to get flak from his family, especially his two sons aged 16 and 14, for not investing in real estate. He remembers a heated debate in 2011 with his younger son on this. "I was telling them that he should have asked me to buy real estate in 2002-03, when no one wanted to buy it. You don't buy an asset when everyone is standing in a line to buy it. But I was kidding; he was just 3 years old at that time!" he laughs.
Despite his obvious passion for his work, Nimesh says he tries to get home by 7 everyday; his office is just a 15 minute drive away from home. Asked about his hobbies, he doesn't put on any airs or talk of HNI fads such as running, playing polo or golf. He says simply- "I play with my kids a lot. Two years ago I was able to beat them at badminton and squash. But today it is tough to compete with 14 and 16 year olds. I try and that spoils my knee", he grimaces.
Investing is fine, but where does he spend his money? Nimesh says he's not all that enamoured of cars; he just uses them to get from point A to point B. Nor has he upgraded his phone (he flashes a battered one) in years. "I'll tell you the truth. I'm making more money than I can ever spend. I don't care if you print this. I come from a middle class background. No matter what you earn, ultimately you end up eating curd rice. Personally, money has stopped being a driver for me ten years ago."
This has us all laughing for a while. Such brutal honesty is refreshing. Top managers in this industry are usually criticised for their over-the-top ambitions and pay packets; but this is one CEO who breaks the mould.
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