The Hindu Business Line : `We understand the investors' perspective better'

A flexible investing style that will outperform over the long term is a key differentiator of AIG's first India offering. — MR SAURABH SONTHALIA, MD & CEO, AIG INDIA AMC

A Fortune-500 company, American International Group Inc is one of the world's largest financial companies with owned assets of $979-billion spanning areas such as insurance, asset management and financial services. The fund-house's first offering in the Indian market is a diversified equity fund, AIG India Equity Fund. Business Line spoke to Mr Saurabh Sonthalia, the fund's Managing Director and CEO in India, to gather what differentiates AIG from the other global giants who are lining up their India offerings:

Excerpts from the interview:

The Indian stock market has under-performed other emerging market options such as China and Korea in 2007 after outpacing them until 2006. Will this impact fund flows into India?

Return comparisons over short periods of time can always be misleading. Fund flows, in my view, will depend on the future return potential that investors see for Indian stocks, rather than on past returns. We believe that with several long-term drivers — domestic consumption, outsourcing, infrastructure — in place, the Indian economy is in a long-term growth phase.

Given that there are already multiple players and schemes in the Indian mutual fund market, what are the differentiators that AIG can offer, as a new entrant?

We offer a totally flexible style of investing with no style bias. Generally, we have observed that neither the growth nor the value style of investing has tended to dominate returns over the long term. Second, stocks belonging to different market caps and sectors tend to outperform at different stages in market cycles. Therefore, a flexible style of investing is one that will outperform over the long term, and that is a key differentiator.

But most mutual funds in the Indian context seem to follow a flexible, bottom-up style of investing. What else differentiates you?

For one, as long standing investors in the Indian market, we think that we understand the investors' perspective better. This is why, as a confidence inspiring measure, AIG is investing its own funds into this offering. We also believe that process-driven investment research is a unique offering that we bring to the Indian market. Equity Platform for Investment Communication — what we call EPIC — is a tool that allows our entire global team of analysts and fund managers to maintain communication on an ongoing basis.

If any of our analysts anywhere in the globe has made a company visit or has prepared earnings forecasts for a company, this is captured in EPIC and automatically relayed to the entire investment team around the world. EPIC also aids the fund manager by automatically generating earnings forecasts based on assumptions, and capturing the consensus market view on a particular stock or company, so that he can evaluate what is factored into the current market price of the company.

Fund houses may have relied on individual decision-making a couple of years ago. But now there are several large global players lining up their mutual fund offerings and all of them claim to have process-driven decision making... .

I concede that the top 10 or 15 fund houses in the global context do have a very process-driven approach, like ours. But I still think that this is a key differentiator for us in India, as compared to some of the domestic players. AIG also has a unique process that evaluates a company based on the stage of its development. For instance, the financial metrics and valuations that we would apply to an "early stage" company have to be quite different from that applied to a "mature company".

We generally classify all companies in the investment universe into various categories based on the developmental stage to which they belong in their life-cycle. The metrics we apply to each category of companies are different.

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