"Money management business is akin to running on the treadmill"

We speak with Swati Kulkarni, UTI's veteran fund manager, as she bows out from the hustle-bustle world of fund management

Interview with Swati Kulkarni, who grew UTI MNC Fund 16X

There are few fund managers in India who have managed money at one organisation for more than one decade, let alone close to three. Swati Kulkarni, the equity fund manager at UTI AMC, is the odd one out in a world where change is the only constant.

Days before Kulkarni was to retire (she withdrew from her profession November-end), she sat down with Chirag Madia and Omkar Vasudev Bhat to chronicle her 30 years in the industry. During our wide-ranging chat, she spoke about her learning curve, investment philosophy and the highs and lows that marked her successful career. Here is the edited transcript.

You have been in the mutual fund industry for nearly three decades. Can you share your learning experience while evaluating businesses and managing portfolios all these years?
Even though I had joined the UTI Mutual Fund in 1992, my first stint in the investment side started in 1998. Between 1998 and 2002, India was going through the poor credit cycle. Here my first learnings came that high debt in a company can really destabilise the business. Secondly, during the 2000s when the dotcom bubble happened, I first time saw how the market can be exuberant in terms of valuations. Technology stocks were trading at exaggerated earnings growth expectations. On the other side, there were strong, quality businesses in some consumer names which were growing steadily and were available at reasonable valuations. This period taught me that the market tends to have such mispricing and one should lap up such opportunities for longer wealth creation. Around that time, I also realised the importance of 'economic value adds'. How such companies tend to continue to do well, despite having higher valuations. So, for example, companies which generate higher return on capital (ROC) than the cost of capital, they add economic value. So those were the learnings to begin with.

When and how did you become interested in investment management?
During the three years of my Master of Financial Management (MFM) at NMIMS in Mumbai, I observed the significant increase in the net asset value (NAV) of UTI Mastershare Unit Scheme where my father had invested some money at its launch in 1986, that ignited my interest in the mutual fund as a career. Post my MFM, I worked with Reliance Industries in their corporate finance department for a year. Finally, when there was an advertisement in Business India magazine for finance professional recruitment at UTI, I gave a try at it, as UTI was the leader in the money management business. Even though I had joined UTI in 1992, the thought of becoming a fund manager started imbibing in me around 1996, when my boss Mr Basudev Sen told me that I have all the capabilities of becoming a fund manager.

When did you move into the money management division?
After joining UTI MF, I was working in the Research and Planning Department and I was looking into macro and sector research, evaluation of fund performances on risk adjusted basis, keeping track of competition etc. on a regular basis. I also got a chance to initiate steps to redesign some of the assured return, administered priced schemes as that was the time when the Reserve Bank of India (RBI) freed interest rates leading to fall from 19 per cent to 12 per cent. In 1998, I was shifted to the funds department and till 2004, I was largely into the role of an assistant fund manager where I analysed various stocks and sectors. In 2003, the restructuring happened, and fund managers were empowered to make decisions. At UTI, earlier those decisions were taken by a few heads of departments. In June 2004, I got independent responsibility. The first fund I got was UTI MNC, followed by UTI Dividend Yield Fund in December 2005 and UTI Mastershare in December 2006.

What ups and downs have you seen in your investment management career?
The best moment of my three decade career was in 2010 when one of the diversified equity funds that I managed won the CRISIL-CNBC TV 18 award. It was significant because that was also the first for any actively managed equity fund from UTI MF since these awards started. There are other high points when investors' interactions have positive feedback on how their investments in the funds I managed contributed in their wealth creation journey, that is truly satisfying as a fund manager. Money management business is akin to running on the treadmill and past laurels don't help for long. The low time in my career was when during 2014-2017 the investments in UTI Dividend Yield funds didn't fructify as expected. We had exposure in high dividend yielding banks which were attractively valued. But the prolong issue of chunky non performing project loans (NPAs) and high credit costs led to lower profits/ losses adversely affecting the banks' ability to continue dividends, also resulting in underperformance of banks by wide margins. So, the learning was that cheap stocks are not always good. It can be a value trap too.

What has been your investment approach?
When I started my career at UTI, we did see the opening up of the economy, change in the interest rates and many other things which were an experience. But key learnings came when I was into the role of assistant fund manager, where I learnt a lot and helped me as a fund manager. I learnt nuances of portfolio management, understood the importance of position sizing, top-down approach, sector active weights, stock picking skills and portfolio strategies. Coming to managing funds since 2004, my preference has been towards companies with strong entry barriers having strong competitive franchises for both UTI Mastershare and UTI MNC funds.

For UTI Dividend Yield Fund, I preferred stocks which gave not only good dividends but had potential for capital appreciation. So, that thought process hasn't changed much. Later on, as a house we chalked out our proprietary investment process 'Score Alpha' which rates companies in our universe on consistency of operating cash flows and quantum of return on capital employed. The process encourages diverse investment styles matched with the individual fund manager's style and mandate of each fund. We also disclose the parameters on the monthly basis to bring in transparency to our stakeholders as regards to the adherence to the style. This has led to a structured approach with process being at the centre stage allowing us a cohesiveness in the team and smooth transition without altering the mandate, like in case when the funds managed by me are being handed over to my successors.

What is the secret of your longevity (staying in UTI for 30 years), given the massive turnover of fund managers in the industry?
The growth of assets and net asset value (NAV) has been multifold - 16 times for UTI MNC, 7.9 times for UTI Dividend Yield and 6 times for UTI Mastershare. This is very gratifying that my team and I could contribute to the wealth generation of our investors. Secondly, the exposure and freedom I got at UTI is also praiseworthy which further helped me in managing funds. While other fund houses had smaller research teams, we had a big in-house research team and importance was given on the processes. I also got the thrill of changing jobs by staying put here, as top management kept changing every 4-5 years, and I had to prove my mettle every time a new person came in. After spending 8-10 years in a company like UTI, which is a strong brand and where I got to do what I liked, the loyalty of 3 decades was an outcome that had to follow.

What's your advice for budding asset managers who will handle other people's money?
One advice I will give them is that they should not get into prediction games. As one starts predicting the markets there are also risks of the unknown. The risk can be much different from the history for e.g., black swan event, recent experience is the pandemic. It is always better to stay prepared than predict. If one is graduating from a role of analyst to fund manager, they should have a big picture view and position sizing is very important while managing the funds. Remember wealth creation journey is a marathon, not sprint. If you happen to find good businesses, allow it to compound returns, avoid unnecessary trading in and out. The turnover of the funds that I managed has always been on the lower side. Being humble and listening to the contrarian view to yours helps in being reasonable about the expectations, control your emotions with the stocks and helps in strengthening your conviction.

Now that you are retiring, what are your plans?
Firstly, I want to formally learn painting and travel is also on the cards. Professionally, I have plenty of time at my hands now to decide.

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