Mumbai: IPO-bound HDFC Asset Management Co. Ltd’s (AMC) managing director Milind Barve comments on the company’s focus on retail customers over high net worth individuals (HNIs) and corporate customers, structural changes aiding growth of the mutual funds industry, timing of the initial public offering (IPO) and why massive inflow of liquidity is not a concern for fund managers. Edited excerpts:
Is it the right time for the IPO?
I don’t think we are trying to time the IPO with the right time or wrong time approach. The larger decision that the shareholders and the board took was to list the company and, once that decision was taken, we started the preparation. We didn’t look at a particular time to plan the IPO.
Given that the markets have been volatile, have you faced issues on valuation?
Our decision to do the IPO was more of a fallout of our decision to list the company. It was not predicated by the market condition.
Sebi had an issue with your decision to allot shares to distributors before the IPO. How did you manage to resolve the issue of pre-IPO placements so quickly?
There was a reasonable amount of demand from people to get that chunk of shares. The decision was taken on the basis of the quality of people who wanted the shares and those who were able to turn around the decision-making quickly. KKR was able to respond quickly. So we got that affected through our teams. We did that with all the 179 distributors who were allotted shares.
HDFC AMC used to be the largest asset manager in terms of both equity and debt AUM combined, but now you are in the second position. How do you plan to regain that top spot?
For us it is more important to be large in the right product group, which for us is equity. We are among the largest two and for the last 10 years we have been either number one or number two. We are still the largest in equity-oriented AUM (assets under management).
We are quite pleased with that. For us size, per se, is not the only thing. For us having market leadership in the right product is more important. So regaining number one position, one can say that aspirationally, but that does not bother us.
As a company, you haven’t focused much on products such as portfolio management services (PMS) and alternative investment funds (AIF). What is the reason?
Scale is important to us. We are a scale player. Scale means that we are not a boutique. PMS or AIF managers do some interesting products of a certain type for a certain audience. While we have a PMS, we will do AIF, but that is not where our heart is. Our heart is more in the mass affluent, the scale business. I would rather go and collect ₹1 lakh SIPs (systematic investment plans) all over the country than doing a small, though interesting, product.
We are driven by the India opportunity, not the, what I like to call, the south Bombay opportunity. We have 8.1 million customer accounts. We add 90-95,000 customer folios every month. That is the scale that we are talking about.
With the liquidity inflow the industry has seen in recent past, there seems to be a concern that some funds have grown too big in size. Is that something of a concern at HDFC AMC?
If you look, the large funds are predominantly large-cap funds. The challenge of size comes typically in small-cap funds and micro-cap funds. We have a small cap fund, which is ₹4,000 crore in size. At some stage of its size, we may want to cap inflows. But if you see, the market cap ownership of the whole mutual fund industry, it is just 5%. So, if they are large-cap oriented funds, then size is not a problem.
Would you look at consolidation to gain market share?
We will keep looking at opportunities. Lately we haven’t found anything reasonably interesting and at a reasonable price. But in the life of our company of 18 years, we have done two acquisitions. We acquired Zurich AMC in 2003, which was a game changer, and we bought a small Morgan Stanley fund of around $500 million in 2014. So, if there is something opportunistic, we will have a look.