Founder of Quantum says asset management in India is ‘like the mafia’

[chahlley]

(China&India Today Saturday 10 September 2016)

Founder of Quantum says asset management in India is ‘like the mafia’

Mr Ajit Dayal. Photo: ajitdayal.com

Share

Published: 4:00 AM, September 10, 2016

Ajit Dayal, whose quest is to create India’s equivalent of Vanguard, the low-cost fund house, always flies economy.

For years he has chosen the cheaper ticket, donating the difference in price between economy and business class to charity. It is now a company-wide policy at Quantum Advisors, the Indian asset manager Mr Dayal, 56, set up in 1990.

It is hard to imagine many other company heads turning down business-class flights on long-haul journeys, but Mr Dayal is unlike other senior figures in the investment industry.

The chairman of Mumbai-headquartered Quantum Advisors, which oversees US$2.5 billion (S$3.4 billion) in assets, arranges this meeting at the Financial Times himself, instead of relying on an assistant.

When he arrives at the FT’s office in London, the 56-year-old is unaccompanied by the press officers who normally escort investment executives to media interviews.

Mr Dayal set Quantum up as India’s first equity institutional research company, as the country opened up to foreign investors in the early 1990s. When he starts speaking, it becomes more apparent how different he is to his peers.

During an hour-long meeting, followed by a phone call a month later, the father-of-two accuses asset managers and fund distributors in India of acting like the mafia, complains that international investment companies prioritise profits over investors’ needs, and suggests cronyism is rampant in global financial services.

“I think most Wall Street firms don’t care what happens to their investors, so long as they can make money,” he says.

His outspoken nature has made him unpopular with many distributors and asset managers in India’s nascent asset management industry, where mutual funds oversee Rs13.53 lakh crore (S$274 billion).

But he does not seem overly concerned about this.

Instead, he recounts a story from when he launched the Quantum Long-Term Equity fund, the company’s flagship product for Indian investors, 10 years ago.

At the time, he met one of India’s biggest fund distributors and was told that if he wanted investors, he would have to pay a kickback, which would be a measure of how much money Quantum wanted to raise and how long the company wanted to hold on to this cash.

Mr Dayal asked the distributor why he was not interested in the fund’s style or his long-term record.

The distributor responded: “You are an ant. The elephants in this industry dance to my tune. What can you do? You can’t change the system.”

Mr Dayal, who used to run a fund for Vanguard during the 1990s and early 2000s, did not pay the kickback.

Instead, Quantum decided to bypass the middleman and distribute its funds directly to investors in India, selling products through its own website.

This strategy has helped keep costs down, he says. “We are building the Vanguard of India. We are building a low-cost, direct-to-investor fund house,” he says.

Following his experience with distributors, he believes the country needs more transparency around fund fees.

The Indian markets regulator attempted to introduce rules that would require asset managers to disclose commissions paid to distributors in March, but the industry has lobbied for this to be overturned.

“The rest of the industry is like the mafia,” he says. “We say what we are doing is fighting the mafia of the distribution business.”

Opaque fees are just one of the challenges facing investors in India, Mr Dayal adds, citing the departure of Raghuram Rajan as governor of the Reserve Bank of India.

Mr Rajan clashed with India’s government, led by Mr Narendra Modi, over the central bank’s gradual pace of monetary easing, which was seen by critics as sacrificing India’s growth prospects on the altar of inflationary caution.

Mr Dayal, however, says: “(Mr) Rajan’s departure is extremely sad. He was clearly a fantastic banker. His three years (in charge of the central bank) have been a source of stability and a confidence builder in India. It is a very sad statement in my view on Mr Modi’s intentions to create stable growth.”

Despite these concerns, he says it is a “wildly exciting” time to be managing money in India. The country is undergoing strong growth as its population becomes richer and consumes more.

“Our ambition is to grow a lot. We want to be in the top five asset managers and to do that we need to grow 100 times in seven years.”

The University of Mumbai graduate dismisses suggestions that this sounds like a lofty goal.

India has a large and growing middle class which is good at saving, he says, albeit traditionally through property and gold.

The man who wrote two comic books explaining stock markets in the 1980s says the challenge now is to convince them to invest in shares and bonds.

Quantum, which also manages money for non-Indian institutional investors, is looking abroad to raise money as well. It plans to launch a mutual fund to target European investors later this year.

This is partly the reason behind his visit to London.

Mr Dayal, who was mentored by the late Tom Hansberger, the former chief executive of Templeton, the United States asset manager, wanted to see what the mood was like in the United Kingdom following its vote to leave the European Union (EU) in June.

He arrived within 48 hours of the result of referendum and spent the following days stopping passers-by in London to ask how they voted and why.

The vote in favour of Brexit should be a “wake-up call” for the global elite who wanted the UK to remain in the EU, says the Mumbai resident.

He believes many people voted to leave because they felt their lives would be no worse outside of the trading bloc.

Mr Dayal, who spends half the year travelling outside of India and who studied in the US, has benefited from economies opening up to the wider world. But he adds: “Globalisation has not helped everyone.” FINANCIAL TIMESShare