Why Prashant Khemka is excited about returning to MFs
8 min read . Updated: 25 Dec 2022, 11:53 PM IST
PremiumThe founder of WhiteOak Capital Group narrates his financial journey and explains why he is bullish on MFs
Prashant Khemka is palpably excited. His company, WhiteOak Capital Partners, is readying plans to launch a global emerging markets (GEM) fund for Indian investors. That will happen as soon as market regulator Sebi lifts the overseas investing limits for Indian mutual funds. The boutique investment management and advisory firm had recently launched a similar fund in its offshore platform for foreign investors.
But that is not the only reason for Khemka’s exuberance. It has more to do with his passion for and long-time association with mutual funds (MF). In 2006, he grabbed the opportunity to head Goldman Sachs asset management business in India. That was a long time ago, and Goldman Sachs has also exited its Indian business, selling it to Reliance Capital in 2015. But, Khemka is back in the saddle, this time with WhiteOak Capital, which he founded in Singapore in 2017. His firm even secured approval from market regulator Sebi last year to launch a MF scheme for Indian retail investors
As of now, WhiteOak Capital caters to foreign investors through its offshore funds and India’s high-net worth investors (HNIs) via its portfolio management services (PMS) and alternate investment funds (AIFs).Overall, it manages $5.9 billion ( ₹48,000 crore) worth of assets. Of this, 69% is offshore money (investments made by foreign investors in Indian stocks). More on that later.
Early life
Khemka, 51, attributes his fascination for the stock markets to his humble beginnings . He was brought up in a middle-class Marwari household in the Mumbai suburb of Andheri, where his father ran a hosiery shop and where he worked occasionally and remembers being surrounded by neighbours and relatives who were quite well-off. He claims that he realized the importance of wealth-building quite early in life, having read ‘Think and Grow Rich’, a best-selling self-help book back then.
Stock markets were always part of his life in some form or the other. His father and grandfather had in their possession some physical share certificates of Indian companies. At times, he even traded on these company stocks.
But it was only in the mid-1980s that Khemka started getting serious about stock markets. He recalls that in July 1985, his relatives had gathered for his grandmother’s funeral and the only topic of discussion that time was the markets. And then, between 1985 and 1986, the BSE Sensex delivered more than 100% returns. This was India’s first market bull run.
At around this time, Khemka decided to become an entrepreneur. He set up a small firm called Trinity Ventures with two friends with a capital of ₹3 lakh (each of them contributed ₹1 lakh). He had even borrowed some money from relatives and friends then. But these early investments didn’t turn out well. Khemka also fell prey to fraudsters who duped him with fake share certificates, but that did not in any way dissuade him from entering the markets .
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Career path
Those were the days when the investment industry in India was at a very nascent stage, with very few career opportunities. Khemka says many of his friends wanted to study engineering and then go to the US. And so did he. Khemka studied mechanical engineering, at a college near his house. After getting his degree, he even got an admission at both the Jamnalal Bajaj Institute of Management Studies and IIM Ahmedabad. But that was when he got the US visa. He went to the US and pursued Masters in Business Administration (MBA) at Vanderbilt University (1996-1998) on a full scholarship.
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In 1998, he joined State Street Global Advisors in Boston as a senior portfolio manager. “My professor recommended me to State Street for their quant business because of my engineering background," Khemka says.
It wasn’t easy getting opportunities in the investment industry. He says quant helped him get a footing there. “But I always wanted to get on the fundamental analysis side and on the buy-side."
The baby steps
In one year, he moved from quant to fundamental side within State Street itself. The following year, Khemka got the opportunity to move to Goldman Sachs on the buy-side, where he could manage clients’ investment portfolios.
Initially, he tracked telecom, then print media and publishing, as a sector analyst for the US Growth Equity. Telecom in US was in a big boom phase at that time, Khemka recalls.
In 2003, he became a portfolio manager. He managed US mutual funds, besides accounts for US investors and those outside, separately.
Around this time, Khemka got to analyse several internet companies in their early stages, which today are global giants. Google was one of them and Khemka was able to participate in Google’s listing in the US equity markets. However, he missed out on Amazon because its business model didn’t make sense to him back then. “It seemed that the more sales it was doing, the more losses it was incurring," Khemka says. Only later, several other companies started adopting its sales strategy in the hope of becoming the next Amazon.
Homecoming
Almost 11 years after he stepped foot in the US, Khemka was keen to move back home. In 2006, he got the opportunity to set up and lead the asset management business of Goldman Sachs in India. Goldman Sachs obtained a MF license from Sebi only in 2008, and that happened in the aftermath of the Lehmann crisis. “So, the MF launch plan was put on hold for some time. But Goldman Sachs had already launched an offshore strategy focusing on Indian markets in March 2007, which did quite well. It took quite some time to scale that because of the 2008 financial crisis, but we got clients through separately managed accounts for that strategy," Khemka recalls.
In 2011, Goldman Sachs finally launched its India Equity Fund for domestic investors. This coincided with its acquisition of passive funds business of Benchmark Mutual Fund.
However, at that time, the markets were going through a turbulent phase. The S&P BSE Sensex had fallen 25% in 2011. It recovered strongly the very next year but taper tantrums started in 2013, putting pressure back on the markets.
By 2013, when Khemka was headed to Singapore to oversee investments in emerging markets (EMs) for Goldman Sachs, the latter was planning to exit the MF business in India since it did not achieve the desired scale.
Wider investment canvas
Khemka says managing investments in EMs was a great experience. “I had already managed funds and strategies in the developed world. I had also been managing funds in India for long. The EM opportunity allowed me to look at businesses across 25-30 countries, from South Korea to Mexico. This gave me a lot of investment insights, and understand how different economies have evolved over the years vis-a-vis India," he says.
In 2017, he called it quits at Goldman Sachs and launched his entrepreneurial journey, again. He started WhiteOak Capital, which initially managed offshore money in its India-dedicated strategies. Later, it offered AIF and PMS strategies for domestic Indian investors. However, Khemka wanted to launch a mutual fund business. In September 2021, WhiteOak got Sebi approval for the same. What explains the delay? “Because it deals with retail money, regulators all over the world try and ensure that there are adequate safeguards in place," Khemka says.
WhiteOak Capitial Mutual Fund today manages AUM of about ₹1,500 crore. The fund launched its first equity fund—WhiteOak Capital Flexi Cap Fund—on 12 July 2022.
The fund house plans to launch a GEM fund for Indian investors soon —once Sebi lifts the overseas investing limits for Indian mutual funds. It will be the first-of-its-kind scheme for Indian investors since it will be actively-managed by the in-house investment team of a domestic fund house, rather than feeding from another international mutual fund. WhiteOak Capital has launched a similar fund in its offshore platform for foreign investors.
Recently, it acquired an investment management firm that invests in developed world markets. As of now, this acquisition is just to complement its offshore EM strategy, where it also invests in developed markets. “For example, you can take exposure to China through a French luxury brand as this country accounts for one-third of its revenues, and get EM exposure through other developed world companies," Khemka says
While the MF business will have separate fund managers and a chief investment officer, the 40-member strong research team of WhiteOak will be shared across AIF, PMS and MF.
What next?
In the coming years, Khemka expects the ₹40-trillion Indian MF industry to become much larger. He recalls the conversation he had with his boss at Goldman Sachs when he was looking to relocate to India. “The data I was sharing with my boss back in 2004 was that Indian asset management companies (AMCs) had a total AUM (assets under management) of $4 billion only, while our team in the US alone managed $30 billion of assets and I had been assigned as senior portfolio manager overseeing close to $10 billion of assets."
Khemka is very bullish about India’s investment scenario. “Today, just the Indian AMCs’ equity asset base has grown to over $200 billion, which is 50-times growth in dollar terms," he says. That explains about why he is betting big on mutual funds and its growth in India.
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