In a telephonic chat with BusinessLine , G Pradeepkumar, CEO, Union Asset Management Company, explained how the AMC has turned over a new leaf since the exit of KBC Asset Management in 2016, and why the fund house’s best is yet to come. Excerpts:

It’s been roughly two years since Union KBC AMC became Union AMC. What has changed for the company in this period ?

Since we became Union AMC, one of the fundamental changes has been in our distribution model. When we were with KBC, the distribution was entirely through Union Bank and its branches. That’s the model KBC was following in many of the countries they were operating in. While this model led to good success in the Union Bank network for us, it kept us away from the wider market.

So, since KBC’s exit, we have been trying to engage very actively with other distributors, especially IFAs (independent financial advisors). We have empanelled at least 2,500 distributors, and continue to add to that number. We have started getting business from them. This year, our target is to get at least 10 per cent of the business from outside of Union Bank. And gradually, we will increase that share.

Another thing that happened earlier this year is that Dai-ichi Life of Japan took a 39.62 per cent stake in our company through compulsorily convertible preference shares. However, that doesn’t change our business model or operations.

We have made changes in the investment side, too. Vinay Paharia, who was earlier with Invesco Mutual Fund, joined us as CIO 6-7 months ago. On the fixed income side also, we very recently added one more fund manager.

Why are most of your current funds only middle to bottom-quartile performers over the long term?

We recognise that our funds have not been delivering value. Apart from revamping the team, we have put in place a new investment process. It is more disciplined now. We invest only in companies that have a minimum market cap of ₹500 crore. We have filters on business, management and valuation. Our funds will invest only in companies that are there in the investment universe of our fund house. Currently, we have 130-odd companies as part of the universe.

This process is helping us improve our performance. The results are already visible in the short-term performance. We recognised that there was a gap earlier, and we have taken corrective action. Long-term returns will also improve.

You started the mutual fund business at around the same time as Axis Mutual Fund and Motilal Oswal Mutual Fund. However, at ₹4,000-5,000 crore, your asset size is much smaller than their’s…

As I mentioned, the main reason is that we were focussing on selling only through Union Bank branches all these years. Everybody has a different business model. We were growing in a more focussed way. We would have liked to grow faster. But then, we started in 2011, and in 2013 and early 2014, markets were not that conducive.

But the good part about us is that the share of high-margin retail products is higher for us compared with the rest of the industry. Equity and long-term debt products constitute 75 per cent of our asset base. We are also focussed on growing the number of investors. The number of live folios will be 2.25 lakh. In the past two years, our growth rate has been better than in the past.

Do you have any targets for growing your AUM?

We target to hit ₹10,000 crore in two years. That will not be through fund launches per se , as our product basket is getting nearly complete. We are already there in more than 10 of SEBI’s product categories. We will launch funds very selectively from now on.

Our future growth will come from adding new folios on the retail side, attracting more investors. There is a lot of scope there. The second thing which will bring us more money is SIPs; particularly this year and last year, we have been doing well on SIPs. We are focussing more on building a track record for our existing funds and selling the open-ended funds on a regular basis. We will not have an NFO (new fund offer)-centric strategy.

Even before SEBI made it mandatory, we have been very clear that products should be differentiated. We have had the approval for the past six months to launch a value fund, but we didn’t because we thought it was not a good time to launch a value fund. Now that stock prices have come down, we will be launching it shortly. Whatever money we raise, people should make money on it. Otherwise, we will not be able to grow in the long term.

Since you mentioned about having a greater proportion of retail folios, how is the inflow from the B30 (Beyond Top 30) cities?

We will be one of the few AMCs where a majority of the folios are from beyond the top 30 cities. Among our top 10 cities, three are actually from what SEBI has categorised as B30. Our belief has always been that there is a huge untapped market out there for mutual funds, and if we can reach out, most would invest in funds. So, that’s the strategy we continue to work on.

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