(Hat Tip Prashant)
If you didn’t have the data, you might reasonably assume that any fund manager worth his salt was heavily invested in his own fund. This ought to apply to an overwhelming percentage of all the actively managed funds out there. In fact, as a recent article in Barron’s points out, it’s the exception rather than the rule. Using data from Morningstar, they find that almost half the funds tracked were led by a manager with no money invested at all. This sorry bunch may think they’re good, and their marketing materials presumably make the case, but by investing their own money elsewhere they tell you what they really think.
And of the 7,700 funds tracked by Morningstar, only 910 had a personal investment by the manager of at least $1 million. This isn’t a high hurdle; less than this threshold either means the manager doesn’t have $1 million to invest, a paucity of personal resources that should give any potential client pause, or chooses not to.
It’s not just that it feels right to know your manager is invested alongside you. For the client, this is the only way to ensure alignment of interests and protect themselves from the principal-agent problem so prevalent in finance. If you’re a fund manager only managing OPM (Other People’s Money), your compensation is fully linked to the size of the fund you manage. The most reliable way to grow your fund is to outperform your competition. A seductively simple way to outperform is to take more risk than the others. Because if you take more risk in a rising market, you will assuredly do better than most and money, which chases performance, will follow. If the market goes down and you underperform, you haven’t lost much because it’s only your clients that suffer the returns. And if performance is really bad, you can always start a different fund.
For the investor, it’s not a bad rule to simply eliminate from consideration any investment manager not personally and significantly invested in his own strategy. It makes intuitive sense but it also provides for an alignment of interests. Don’t let the uninvested take advantage of you.-from SL Advisors
Category: Excerpts
(Disclosure:I am market making in the shares of ICICI Pru)
Top private sector lender ICICI Bank will consider listing its two insurance units to unlock value at an opportune time when it feels that valuations are optimum, the bank’s chief Chanda Kochhar has said.
We will take this step when we feel that the valuations are really optimum. We can mainly look at two insurance companies — life and general insurance units,” Kochhar said.
While making it clear that there were no immediate plans for listing of any of its subsidiaries, she said, “Clearly, at some point of time we will look at some amount of unlocking of value, more so from the point of view that it establishes a benchmark and it is always good to have a benchmark.
“But the thing is that we do not really need capital, whether it is in the bank or in the insurance company,” Kochhar said.
In ICICI Bank’s latest annual report, Kochhar had said that the bank’s subsidiaries achieved healthy performance in fiscal 2014.
“Our life insurance subsidiary sustained its profitability and maintained its position as the largest private sector life insurer in the country. Our general insurance subsidiary saw strong improvement in profitability in fiscal 2014 while maintaining its market leadership position among private players.” – from ET
Categories
Petroleum=Cash?
In 1996, the Central Bureau of Investigation began pursuing a 1993 bribery case in which members of the Congress-led ruling alliance allegedly paid the Jharkhand Mukti Morcha to help defeat a no-confidence vote and keep the government intact. In the course of that investigation, the CBI questioned Brijnath Safaya, the additional private secretary to Captain Satish Sharma, the minister of petroleum at the time the joint ventures were awarded.
In a statement recorded by inspector Harish Sharma, and reported by Outlook, Safaya claimed that in the months before the contracts were awarded he had been at Satish Sharma’s house to receive suitcases stuffed with roughly Rs 13 crore. He also said that frequent visitors to the house included Mukesh Ambani, and the heads of other private companies whose bids were eventually successful. Reliance, Safaya told the CBI, sent Sharma a total of Rs 4 crore through one S Raman in 1993—Rs 1 crore in June, Rs 1 crore in October and Rs 2 crore in December. The heads of Essar and Videocon also allegedly sent cash. At least some of this money is thought to have been routed to the JMM. (Safaya later retracted his statement.)-from Caravan
Categories
Wishful Thinking
The 57-year-old Vikram Pandit has not given an interview in almost two years since he was ousted as chief executive of Citi. At any large US company, where supine boards are often the order of the day, this would have been an unusual event. At a bank that used to be the biggest in the world, and whose operations span 100 countries, it was stunning. Perhaps this explains why both Citi and Pandit have maintained their separation was amicable.
With many of his new interests, Pandit says he is looking to remove “frictions”, which happen to be the way Citi and other banks make their money: for example, the middle men that sit between a big bond manager and retail investors and charge a fee. As he points out, the wealthiest individuals are not saddled with these costs to the same extent.
“If you are a large, wealthy multi-billionaire you can put that into an M&A transaction and earn 15-20 per cent. If you’re an ordinary American you earn 2 per cent on your investments. That disparity has to be democratised. It’s now possible to take those frictions out. That is an important concept because it expands the number of people who are in the financial sphere. That has a positive growth impact. At the same time it is about unmet needs.”
I ask how he finds his investments. “I have an office and it’s Grand Central Station: everyone comes through there. That shouldn’t be surprising,” Pandit adds matter-of-factly. “That’s just the nature of things.”
The bill arrives and, without thinking, I take out a Citi credit card to pay. Pandit seems pleased. He still has a lot of his wealth tied up in Citi stock, though he will look to sell if it rises a couple of dollars.
“Wishful thinking,” he muses.-from FT
Categories
These people are capable
When the blocks were awarded by the government’s Directorate General of Hydrocarbons the following January, Bora was taken aback, the board member said. ONGC had lost KG D6, outbid by not only one, but two firms—Reliance Industries, which won the block, and Cairn Energy, a European upstream company.
ONGC’s director of exploration thought that something “fishy” was going on, the board member said. “I feel it got leaked out—our numbers got leaked out and somebody was snooping around,” he recalled the director telling him. The director suspected that the bid was opened beforehand and given to Reliance. “In the DGH’s office itself the bid was opened and given to them,” he speculated to the board member. “They took back their bid, and came back with a new envelope.”
“Of course this was unconfirmed,” the board member told me. He wondered if there was “one dark horse” in ONGC who spied for the competition. Were the private companies that cunning? He said almost admiringly, “These people are capable.” – from Caravan