Table Talk . Crisis and redemption : A fund of lessons

As I drive through the sweltering Chennai heat to keep my lunch appointment with Sanjay Sapre,the outgoing President of Franklin Templeton India, I decide to stick to the salads on the menu. The main purpose of this chat is to get Sanjay to talk about his leadership and crisis management lessons from Franklin Templeton’s (FT) controversial decision to wind up six of its debt schemes in April 2020.

But by the time Sanjay walks into the lobby of Taj Club House, hunger pangs have struck. I break my resolve and order a Mysore masala dosa instead, while Sanjay goes with a grilled chicken Caesar salad.

Anatomy of a crisis

I ask Sanjay what were the high and low points of his stint as FT’s President since August 2016. The low point, Sanjay says smilingly, is easy to pick. “It was the day we found ourselves in a position where we had to wind up six of our debt funds.

”He counts the high point as the year 2019 when FT’s India business, a midget in the global scheme of things, turned out to be the top performing market globally. But dealing with the winding up decision also led to immense personal learnings that he counts as positives.

This opening allows me to ask what went on in FT before this drastic decision. There has never been a precedent of a mutual fund in India suddenly shuttering open-end schemes, preventing investors from withdrawing their money.

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The winding up decision was a tough call, Sanjay says, but with a liquidity crisis freezing bond markets due to Covid, the Board and management saw this as the best course.“We took the decision based on what would be best for unitholders. We had to decide whether we wanted liquidity at any price, or preservation of value. If we had been holding junk, we may have taken liquidity at any price. But as we were confident about portfolio quality, we felt the right price could not be discovered in that market situation.”

I must have looked sceptical because Sanjay adds: “Nobody believed us then, when we said we were confident of portfolio quality. But over a period of time, most of the portfolio has been liquidated and monies paid back to investors.” Till date, FT has paid back ₹26,098 crore to investors, about 103 per cent of the amounts outstanding as of April 2020 in the six schemes.

Our orders haven’t arrived yet and I fight the temptation to dive into the vadams (rice crisps) on the table. Sanjay ignores them as he’s totally focussed on the interview.

Managing the backlash

FT had dropped this bombshell at 9.30 pm on the fateful day. I ask Sanjay what preparatory steps were taken to manage the backlash. Sanjay recalls that the phones did ring off the hook at the FT offices. But an internal call had briefed everybody and armed them with a set ofFAQs to deal with queries. Most investors were unhappy that FT didn’t give a timeline by which the monies would be paid back.

Sanjay says that this was because in April 2020, with Covid panic at its peak, no one even within FT knew then whether market conditions would ease up in a few days, weeks or months. “We didn’t have the luxury of time before we announced this. The market had frozen up. There was a day when there were no government security trades for 30 minutes — this had simply never happened in history.” He points out that even when the lockdown was announced in March 2020, no one knew how long it would last.

FT did have a good communication strategy in place, writing fortnightly to investors. “We wanted to convince people that this was not a scam and we would not be running away with the money. Transparency was the best way to give people confidence.”

My Mysore masala dosa arrives, neatly folded into a square, with a generous potato filling, two types of chutney and a steaming sambar. I dig in immediately after excusing myself for using my hands, as I don’t plan to mangle the creation with a fork.

As he spears his spartan-looking salad, Sanjay comments that he too is an idli-dosa fan, with South Indian dishes figuring on his home menu every Thursday, when the family goes vegetarian.

Food puts me in a happier mood and I comment that FT has eventually managed to return most of the money ahead of the timeline it initially indicated. How? Sanjay points to three factors. “We knew that when the markets became more liquid, many of those securities would become more sellable. If interest rates fell further, refinancing would turn attractive for many issuers. We had covenants, which if breached would trigger pre-payments. All this played out, helping in early liquidation of the bulk of portfolios.”

I mention that many journalists, including me, held investments in FT funds. Short-term Income Plan is one fund where 100 per cent of the money hasn’t yet been returned and dues remain. Sanjay jokingly asks me not to worry, as he holds that fund too. “But you are richer than I am,” I retort. Sanjay quips that he isn’t so sure.

A Mumbaikar by birth, Sapre went to Campion School and Sydenham College. He worked for a couple of years before pursuing his MBA in Marketing and Operations at Ohio University. Prior to his 20-year stint with FT, Sapre worked with a US IT company and Thomas Cook. “I am IATA certified, so I can work as a travel agent!”, the 52-year old jokes.

Having made substantial inroads into the masala filling, I find myself suddenly full and try to nibble at the crisp sections alone. We order orange and fresh lime juice to wash down our meals.

Brand perception

I ask Sanjay what FT plans to do to repair the substantial damage to the brand due to this saga. He doesn’t hedge and admits the brand has taken a hit. “But if you ask me if Franklin Templeton has deviated from its values, we believe it hasn’t. We didn’t take any decision that was against investor interests. But brand perception has been impacted and it is up to us to rebuild that. We saw the first step to this rebuilding as returning the money. Till we did that, we felt there would be very little receptivity to hear any other message. Having returned most of the money, we are planning a series of engagements with investors and distributors to communicate that FT remains a brand they can trust”.

In this era of social media, most investors get their news from WhatsApp or Twitter. So how did FT handle the social media fallout?

FT’s analysis showed that 95 per cent of the social media commentators on this issue were not investors, but bystanders. So, it decided that trying to respond to every social media post was a losing strategy.

“By doing this, you are only lending credence to the allegations and fuelling popularity for individuals trying to gain followers. Our most important audience was investors in these debt schemes, followed by investors in our other schemes and our distribution partners. So, we made a very conscious decision to target our communication to our investors.” When there were genuine social media queries, FT DMed to resolve it offline.

I switch topics to the stock markets, which have been on a song, Covid or no Covid. Retail behaviour this time around has been different. When markets fell, MFs attracted fresh money. Is this more mature investor behaviour or naïve risk-taking?

Sanjay says it’s a bit of both. “As a 28-year old industry, we now have a certain level of maturity among not just investors but also advisors, commentators and media. There is a lot of talk about handling volatility, sticking to your asset allocation etc. But there is also a new set of investors who have only seen a one-way market. They saw the March 2020 correction and the swift rebound and believe that every correction will mimic that. Match that with FOMO (Fear of Missing Out) and greed and you have a nice cocktail! But I think now the TINA (There is No Alternative) factor for equities is ebbing. Real estate is picking up, interest rates are on their way up.”

An hour has passed and it's time we finished. I ask how he has coped with this crisis personally. Did he take to reading the scriptures or doing yoga?

This draws a laugh — “Honestly, I didn’t have the time to do any of that. Working from home during the crisis really helped, as I had the support of my family. The core team at work really stepped up to the challenge and was wonderful. FT as an organisation, being very clear in its values in terms of putting clients first, also made it easier.”

Exercise helped too, with Sanjay and his family being avid cross-fit trainers.

Sanjay gets a bit emotional when he adds, “The incredible part was lots of my friends had money invested in these funds, but not more than three of them called me to ask me about it. When I told them that we had plans to return the money in a time-bound manner, they were satisfied and I never again heard about it from them. I really appreciated that!”

I know that Sanjay is set to step down from his current role as President at FT India to assume a global role in July. I ask him what the role is. “In the global role I’ll be heading D2C initiatives for FT. FT is not a household brand like Amazon or Google. For us, D2C means understanding the investor better, so that it has a rub-off effect on our business. There is now a universe of investors who choose to be self-directed and one part of the role is to engage with them. I have a hypothesis that the next generation of investors will behave very differently in terms of receiving, processing information and making decisions. Understanding that shift and preparing for it is going to be very exciting,” he says as we wrap up.

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