Skin in the game rule: MF industry may seek amendments to SEBI’s diktat

Suresh P Iyengar Mumbai | Updated on April 29, 2021

Radhika Gupta, CEO, Edelweiss Asset Management   -  BL

Fund houses think move could hurt business and talent

Mutual fund companies may approach the Securities and Exchange Board of India (SEBI) seeking changes to the recent order that requires minimum 20 per cent of the compensation of key employees to be paid in the form of units of the scheme in which they have an oversight role. The industry feels that although the market regulator’s intent is right in making it mandatory for fund managers to have skin in the game, the implementation could be a problem.

Radhika Gupta, Chief Executive Officer at Edelweiss Asset Management said the circular could be hard on junior research staff, dealers and support function heads. “For a guy earning ₹15-20 lakh (per annum), imagine how difficult it is to put away ₹3-4 lakh. We are constraining employee cash flows,” she said.

“For a mid cap fund manager, he has to invest in his schemes or a higher risk grade. Just because I run a mid cap fund doesn’t mean this is my risk appetite! And a liquid fund manager has to park money in liquid for 3 years,” she said.

To hit cost and talent

Another industry executive said that to implement the circular, mutual funds will be forced to pay everyone 20 per cent more hitting the business and cost structure.

“Forcing someone to save is absurd. If the intention is to improve performance of a fund or stop dishonest practices, it is a failure. Every fund manager tries to do the best he can. And if SEBI’s diktat is aimed at curbing dishonest practices, it is a waste. Dishonest practices target returns of far more than twenty percent of annual compensation. In fact, it could be twenty times annual compensation,” said an industry expert.

Different view

Industry executives said that finding talent in the mutual fund industry could become an issue if they are forced to invest in a certain way. “The industry will take these concerns to the regulator and hopefully there will be some changes,” said an industry executive.

However, Samir Arora, Founder of Helios Capital has a different take. “An equity fund manager better be excited with the funds he/she manages, this is not just a job that you are doing without believing in the thesis. If his risk appetite is lower or higher, he is not the right person to manage the fund,” he tweeted.

Published on April 29, 2021

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