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HDFC Asset Management Company


HDFC AMC is the largest asset management company in terms equity-oriented AUM and second largest AMC in terms of overall AUM. Its focus is on mass affluent consumers who are increasingly investing in equity markets as a form of long term investments in addition to traditional investment options like bank deposits and real estate. HDFC AMC is thus a direct play on financialization of savings in India.

As of March 31, 2018, company served customers in over 200 cities through pan-India network of 209 branches and a network of over 65,000 empanelled distribution partners across India, consisting of Independent financial advisors, national distributors and banks.

Key Performance Indicators

Table below shows the assets under management for last 7 years.

Source : IPO Prospectus

Company’s AUM has grown at a CAGR of 24% over the last 5 years, in line with industry but its equity-oriented AUM has grown at a faster rate of 37% over the same period. Majority of the assets are managed as mutual funds while AUM of PMS and other services is negligible. Company aims to serve mass affluent customers using mutual fund route rather than HNIs using PMS, AIF or other services.

Over the last 5 years, share of AUM from individuals has steadily increased from 55% in 2013 to 62% in 2018. Table below shows break up of AUM by catagory of investors and number of individual investors served by the company.

Source : IPO Prospectus

Source : IPO Prospectus

As the table above shows, number of individual investors investing in mutual funds has steadily gone up over last 5 years. This trend is expected to continue.

Company offers equity, debt, liquid, index funds, ETFs and closed end funds. Over the years % of assets invested in equity oriented schemes have made up a larger share of total AUM. Table below shows annual average AUM by type of asset class.

Source : IPO Prospectus

Company sources its customers using independent financial advisors, national distributors, and banks. A growing number of customers are investing directly with the AMC and AMC is passing on the cost savings to the cutomer in the form of low expense ratio. Following table shows breakup of AUM based on source

Source of AUM Total AUM Equity Oriented AUM
IFAs 28% 39%
National Distributors 21% 24%
Banks 17% 19%
Direct Plans 34% 18%

Source : IPO Prospectus

Although historical data is not available about direct plans, I feel higher proportion of direct customers will be beneficial to both AMC and customers.

Company has been offering mutual funds for more than 25 years and many of the company’s flagship schemes have generated strong track record. Table below shows some of the popular equity funds.

Source : IPO Prospectus

Company has also demonstrated its skill in managing large amount of funds and beating the benchmarks consistently. Table below shows alpha (excess return over benchmark) generated by company’s schemes.

Source : IPO Prospectus

Systematic Investment Plans
SIP is a disciplined, risk mitigating and a convenient way to invest in mutual funds regularly. Many of company’s customers generate monthly surplus that they can conveniently and automatically invest in mutual funds. It provides a stable source of funds to the company. SIPs have been gaining in popularity over last 2 years and this trend is expected to continue. Table below shows trends in SIP.

Source : IPO Prospectus

Financial Statement Analysis

Income Statement

Company has been able to grow its top line and bottom line by a CAGR of 19% over the last 5 years with little volatility even when equity markets have been volatile over this period. Company’s AUM is linked to market but incremental sales has more than offset drop in market value of its AUM. This trend is also likely to continue provided volatility remains low.

Company’s major expenses are employee costs and business promotion expenses (which are included in other expenses). Expenses are more or less constant so company will see operating leverage as its size grows over time. Employee costs as a % of sales have been declining for years.

Balance Sheet

Company has a clean balance sheet with no debt and low receivables. This business does not need fixed assets and most of the company’s assets are investments, which are invested in its own funds. Unlike Reliance Nippon Life AMC, there are no interoperate deposits.


Company generates enough cash to grow the business and still has enough money left to pay 50% of profits as dividends.

Dividend policy.

Company has regularly paid dividends and is expected to pay 40-50% of profits as dividends given its high profitability and reinvestment requirements.


Company has consistently generated ROE in excess of 40% over last 8 years.



Due to its high dividend payout ratio, I have used dividend discount model to value the company. Assuming a growth rate of 12% over next 10 years and a gradual slow down to 8.5% over next 10 years and a discount rate of 10.8%, fair value works out to be approximately Rs 1450 vs current market price of 1750. Stock is approximately 20% overvalued. However, given its long runway, investors are willing to pay next year’s price today.

Investment Rationalle -

Long runway - Popularity of equities as asset class is growing in India due to better awareness, poor performance of other traditional assets like real estate and improving governance level both at corporate india and capital markets. However, equities only form a small % of total household savings in India. Mututal Funds is a popular way for masses to invest in equities as most investors will not be able to build their own portfolio.
Brand Name - HDFC has a strong brand name in India and it will help the company grow its AUM and pay less commission to distributors.
Invisible Revenue - I couldn’t find a better name for this but the mutual fund customers do not even realize how much they are paying to the AMC. This is perhaps one the few industries where customers aren’t even aware of what they are paying. This is a truly win-win situation. Customers get a higher return on their investments than all other alternatives they have and AMC gets revenue without even sending a bill to the customer.
Growing consumer franchise - Company’s proportion of AUM from individual customers is growing as a % of total AUM. This should help in reducing pricing pressure (as institutions are likely to bargin for a lower price), reduce churn as individuals are less likely to switch AMCs often and build a strong loyalty that might get passed down generations.
Better understanding of Indian investor - Multinational AMCs haven’t been able to scale in India even though they have been here for a while. Only Franklin Templeton is in top 5. Indian AMCs have better understanding of Indian investors, capital markets, distributors and regulators than MNCs.
Scarcity Premium - HDFC AMC is one of the only 2 AMCs currently listed in India. The other AMC is Reliance Nippon Life AMC. Compared to Reliance Nippon Life AMC, HDFC has better growth, more individual customers, higher % of equity AUM and better corporate governance. All these factors will result in higher valuation.

Risk factors:

  • Market risk - Company’s revenue is linked to AUM which in turn is linked to level of equity indices and interest rates. During bear markets, AUM may drop, new investors may not join and revenue can drop while costs will largely remain constant. This can result in a sharp drop in profits. Over the last few years, new sales have more than offset drop in average annual AUM during bear markets however there is no assurance that such trend will continue.
    Debt funds form majority of AUM. While expense ratio of equity funds is stable, expense ratio charged to debt varies based on market conditions and competition. In case of sharp interest rate rise, company will have to drop expense ratios on debt funds.

  • Concentration Risk - A small number of schemes represent a significant portion of AUM. As on March 31, 2018, top six equity-oriented schemes constituted 79.1% of total equity-oriented AUM and top six debt schemes constituted 65.5% of total debt AUM.

  • Alpha risk - Company’s funds may not be able to beat their benchmarks and may be be rated low on their performance by rating agencies. Such ratings have significant impact on sales. Historically, company’s funds have beaten their respective benchmarks but world over mutual funds have trouble beating their benchmarks. Company’s equity-oriented AUM is growing faster than overall market cap of indian equities so company may have trouble beating benchmark with a higher AUM base.

  • Risks from Passive Funds - Over last decade, passive funds have gained popularity around the world because actively managed funds have not been able to beat their respective benchmarks. In India, passive funds are not very popular as active funds have done well and are sold by distributors who are unlikely to push passive funds due to low commissions. However, passive funds have significantly low expense ratios so growing popularity will dent profitability of AMCs.

  • Mis-selling Risk - Over the last 2-3 years many investors have invested in mutual funds for the first time primarily based on advice from their financial advisors. These advisors are paid a commission by the AMCs and may have mis-sold funds to investors who do not understand risks of investing in these funds. Such mis-selling although has resulted in short term boost to the sales, can have long term negative impact on the growth of the industry.

  • Regulatory Risks - AMCs earn their revenue by charging expense ratio to funds. SEBI has capped the rate at which such expenses can be charged. Expense ratios in India are already among the highest in the world and SEBI is likely to reduce the cap over time. HDFC being the largest AMC, will be able to mitigate this risk due to its scale.


Thank you for the post @Yogesh_s ji.

Curious about your Valuation assumptions.

I personally used a DCF with the below assumptions:

  1. High Growth Period of 20 years (Shows management capability, which HDFC AMC clearly has, given its glorious history and promoter association)
  2. ~20-25% Growth Rate slowing down to 4% (In line with the average growth in MFs in India – Equity investments grew at 38% and Debt investments at 15% for the past half a decade, a net growth of 29%)
  3. Margins starting at 50% and dropping to ~14% after 20 years (Intensity of competition in this space, if the US market is a good foreshadowing of what’s to come in India. ~14% is the average margin of the Asset Management industry in India).
  4. Capital Turnover and Depreciation stable at historical levels.
  5. Discounted at 13.62% (50th Percentile WACC of Indian companies, since not enough data is available to calculate the Market-implied Beta manually. I could go with Accounting Beta, but again, very few years of data available there).

I arrived at a Value of ₹1058 after a +/-15% Stress Testing for assumptions, which cites a significant overvaluation at current levels. I argued that the IPO was priced to the neck, but it’s clearly way past that at current levels.

I’d appreciate your inputs.


The mutual fund/AMC business in India has a long runway and we have barely even scratched the surface.

This is taken from Value Research Online:

135 Crore population and only 2 crore investors? That is not even 1.5% “penetration.” Interview of Nitin, Zerodha:


Taken from Reliance Nippon Life AMC presentation:

Taken from Reliance Nippon Life AMC presentation:

I feel there is no point in doing this valuations exercises aka Excel torture of DCF, dividend discount model, etc. Like @Yogesh_s says people are paying tomorrow’s price today. Mr. Market is not a fool and it is evident from companies which are growing and have a good management, the stock is always “overvalued.” Examples: Maruti, Page, Procter and Gamble, Avenue Supermarts, HDFC Bank, Gruh, Britannia, Asian Paints etc.


Hi, can u pls let me know which company is US is closest to HDFC AMC? I was trying to check details of AMC business and how it shaped up in US but could not get hold of a plain vanilla AMC listed company. It will be great if you can share. Even if no direct AMC business but even closest business will be helpful. Thanks

A Common Stock gives you the right to participate in all the future Cash Flows / Dividends of a company. I find it mysterious as to why the “Growth Investing” enthusiasts fail to consider this simple truth.

Growth is just an input in a Valuation. The final Value varies depending on your risk perception. A high growth rate does not automatically warrant an overvaluation.

Of course, if you use something like a 9-10% Discounting on either my model or @Yogesh_s ji’s DDM, I’m sure you’ll find HDFC AMC to be undervalued. So, the question one should be asking is “Am I okay with a minimum requirement of 10% CAGR from HDFC AMC?” Nobody knows the maximum return one can get from a stock. All we try to do is predict the downside with an informed level of accuracy.


20 year growth period is too optimistic. Many companies grow that long but future is always uncertain so I wouldn’t assume such a long growth period to be conservative.

25% growth is not possible. Company is currently growing at 19% so future growth will be similar to or lower than this. At least that is what I assume when valuing the company. Quantitatively, company generates 40% ROE and has a 56% payout ratio so sustainable growth is only 18%. I also assume company’s profitability (ROE) will decline (I don’t know how or why but high ROEs tend go down) so dividends will grow at a rate lower than sustainable rate. To grow faster, company can cut dividend, raise additional capital, or improve profitability. All of this is possible but unlikely.

Required return on the entire market is 12% going by the historical return on sensex or nifty. HDFC AMC is better than an average Nifty company so it will have a discount rate lower than index. In short investors will be willing to pay a premium for a company like HDFC AMC compared to average Nifty 50 company. Hence discount rate will be lower than 12%. How much lower is a matter or judgement. I used beta of HDFC bank since beta of HDFC AMC is not available yet.

Overall valuing a company with such a long runway and profitability is difficult. My only purpose is to make sure we are not paying exorbitantly high price for this stock and get a feel of short and long term expected return.

Long term expected return on a fairly valued stock is the discount rate used in valuation, so at this valuation long term expected return is approximately 10% but short term return might be higher because of growth visibility over the next 3-5 years. Even if we assume expected return as 10%, there will plenty of investors willing to accept a return of 10% for a company like HDFC AMC.

My valuation model shows that stock is priced to perfection so any hickup can result in sell off so we should be prepared for it. On the other hand, most of the value of this company comes from terminal value so market may just ignore a hickup.


Excellent write-up Yogesh sane

In investment rationalle I will like to add
CULTURE. of hdfcgroup . some one asked what is culture ??

  1. In this company they have higher equity oriented funds from initial days which has higher margin and good for long term of AMC (usually they take pain first and then enjoy fruit)

2 Low cost structure or lower expenses are in there DNA

As a long term investor with views for more than 10 years as per your valuation 20% premium can be easily absorb in future

Disclosure Invested in HDFC AMC , Hdfc life and Hdfc bank since IPO



I have been selling mutual funds since 2011, hence have a ground up view on the asset management industry. I sell to HNI’s but have a pretty good sense of how the average person on the street views mutual funds and where we are in the growth cycle of this industry.

If one has specific questions on how selling is done, what kind of investments does an AMC need to make to scale up AUM to say 3X of what it is right now & how the distributor/IFA community views each AMC - please shoot, I will be happy to contribute here

PS: I plan to take a serious look at the listed AMC’s soon


Whenever I see low penetration as the reason for long runway, first question I try to find answer to is why the penetration is so low for so long? More often than not, reasons for low penetration are structural in nature and I don’t see how those can get resolved even on a long term basis let alone on a short term basis. So low penetration is a marketing gimmick than a real basis for investment. There are exceptions though.

So let’s try to find out why (equity) mutual fund penetration has been low in India. Mutual funds have been around for 25 years so that’s a long time (IMO), and I am not even considering UTI schemes that have been around for over 50 years.

Here are a few reasons I see

  1. Equity markets have been extremely volatile and return on equities adjusted for volatility have been average to poor.
  2. Managed Interest Rates on small saving schemes. - interest rates on PPF, EPF etc were artificilly kept higher than market rates. Expected return on equities were low compared to assured return on these instruments.
  3. Poor corporate governance in India - Corporate scams have regularly made headlines dampening sentiments
  4. Stock Market scams - These have been a regular occurrence, big or small.
  5. Awareness and reach - Most investors were simply not aware of mutual funds and AMCs were small enough to advertise on their own.
  6. Strong returns on traditional assets like gold and real estate.
  7. Equities have transparent ownership so cannot be used to hide black money.

These are just a few I can think of. Others are welcome to pitch in. Do we see that these problems will get resolved any time soon?

  1. Over the last 5-7 years, volatility has reduced mainly because of lower global volatility and higher participation from domestic investors. However, 5-7 years is too short a period to say that equities have become less volatile but I would expect volatility to be lower than historical averages going forward.
  2. Interest rates on PPF, EPF, post office savings schemes etc are now market linked although still managed.
  3. Corporate governance has been improving but one bad apple can send us back a decade on this count.
  4. Stock market scams have been going down in magnitude and frequency. Just my observation. Better governance practices from regulators, exchanges, auditors etc.
  5. Mutual Fund Sahi Hai campaign has been a big success. Since this is at an industry level, all AMCs will benefit from it instead of individually advertising it.
  6. Returns on gold and real estate has been poor for last 4-5 years but this could be a cyclical downturn rather than a structural change.
  7. There is a growing fight against black money so hiding it in real estate or gold may have become difficult, hence equities are getting some inflows that otherwise could have gone to these assets. This is just my observation, I could be wrong or just dreaming.

I think overall, some of the structural issues behind low penetration are being addressed while other fixes could prove to be short term in nature and can resurface.


If you have any note you can share here or if e-mail me (will message you separately) , It will be very helpful.

Disc: Invested in Aditya Birla Capital.

For a start will highlight some of the risks one will need to consider and buffer for -

A very active regulator - SEBI has been in overdrive mode (and for good reasons) since they introduced the direct plans in 2013. In the recent past, we have seen all AMC’s forced to consolidate the number of schemes they have to make things easier for customers to understand and invest. The next step in this drive will be a hard look at the expense ratios that most of the funds are charging. To get a sense of what we are talking about here -

Average expense ratio for a large cap fund (regular) - 2.2%
Average expense ratio for a large cap fund (direct) - 1.4%

Average expense ratio for a multicap fund (regular) - 2.4%
Average expense ratio for a multicap fund (direct) - 1.6%

Average expense ratio for a mid cap fund (regular) - 2.6%
Average expense ratio for a mid cap fund (direct) - 1.9%

Average expense ratio for a corporate bond fund (regular) - 1.6%
Average expense ratio for a corporate bond fund (direct) - 1.2%

At a corpus of 5000 Cr and above, there is some very easy money being made by the AMC’s which SEBI will now target. My take is that expense ratios will be forced down by 20-30% lower from where they are in 5 years time. Hence the valuation needs to buffer for this

Emergence of concentrated buying centers due to digitization - Large behemoths like IIFL will continue to emerge in the wealth management space. The large guys will get larger and a lot of IFA’s who are right now just cross selling MF’s will come under pressure. AMFI (self regulating organization) has capped upfront commissions at 1% since 2015, at one point of time the average mid cap fund was paying out an upfront commission of almost 2% to the distributors which is no longer the practice for open ended schemes. In a sense this has shifted the power balance from IFA’s to large AMC’s to some extent. However this is being counterbalanced by the emergence of large technology driven platforms in wealth management where large AMC’s are being amassed by some distributors. As these large distributors get larger, the power balance may get skewed towards the large distributors from the AMC’s, so if an AMC wants a higher share of wallet, they need to pay higher commissions to these large players. This exact dynamic may becomes more clear in the next 2-3 years

Change in channel dynamics - Unwritten rule in most banks is that the proportion of MF business sourced is almost 50% skewed towards their AMC - ICICI Pru for ICICI bank, HDFC AMC for HDFC Baank etc. This is more visible in the retail segment than in the wealth management segments - walk into any branch and see which product is being pushed, 8/10 times it will be their AMC product. RBI in the medium term wants banks to hive off their third party business into a separate entity and won’t allow this to happen through the branch infrastructure. Hence the advantage that the AMC’s with bank parentage have will even out once this happens

Emerging dominance of technology - All AMC’s are heavily investing in building their own technology tools and apps so that they get a captive base of customers. All large customer buying centers are now being targeted by direct sales teams, till 2013 these were routed through large national distributors (ND’s). One needs to keep a keen eye on who ends up owning the customer - technology apps from AMC’s or do it yourself (DIY) portals like icici direct, scripbox, funds india etc

Impending consolidation in the AMC space - 10 years down the line we will surely not see 43 AMC’s operating in India. Bigger ones have to gobble up the smaller ones which are struggling for survival. A similar consolidation is happening in wealth management as we speak, the AMC bit is likely to pick up pace very soon

Positives one can easily see -

Scalability - Other than distribution expenditure, there is no difference between managing a 2000 Cr fund and 20,000 Cr fund. The fund management thought process may change, but the cost structure will not

Multi year growth wave - MF industry went from 10,00,000 Cr to 20,00,000 Cr in 3-4 years. From what I hear within the AMC industry, target setting for AUM buffers in at least 15% growth on a conservative note. That number appears immensely doable over the medium term (4-6 years) even if some volatility emerges in the stock market. Less than 5% of the national wealth is in equities, MF corpus as a % of deposits is under 20% even now.

Favorable macro environment - From being a high inflation high growth economy through the early 2000’s we are now in a medium growth and at best medium inflation regime. What this means is FD’s may not yield 10% any time soon, which means people will need to look at equities as an asset class if they want to get a 10% return on their overall portfolios

Focus on retirement planning and savings - In our generation we do not have the luxury of a regular pension. Once some one retires, everything is on us. This can be implemented through a variety of ways but most of these will get funneled into the large asset managers we have today. The current generation does not have a choice but to actively move to equities and MF over a period of time

Free Cash Flow Engine - All AMC’s beyond a level of scale will be free cash flow engines, expect to see minimal capex and high dividend payouts. This however is an industry characteristic and not specific to any AMC (hence the investment thesis cannot be predicated purely on cash flows looking good, they will look good for most AMC’s and cannot be a differentiation by itself)


Uploading some relevant slides from a presentation I’d made at last year’s VP Conference on the asset management industry, captures some of the thoughts in a pictorial format which is easier on the eyes





Milind Barve talks about firms’ strategy.

Can you share the presentation you presented during last year VP meet.


Thanks @Yogesh_s for starting this thread.

I believe the room for growth is quite substantial for such businesses.

  1. If you see post 1991 reforms actually the CAGR growth of managed interest rate product minus bank deposits growth has been poor when compared to shares and debentures considering data set of investment by households.
    Bank Deposits - 16.9%
    LIC - 18.2%
    PF & Pension - 13.4%
    Shares & Debentures - 14.8%
  2. Post Demonetization there has been a tremendous growth I am assuming assisted by MF Sahi Hai Campaign
  3. SIP inflows are strong and the common man is being brought into this fold. With increase in per capita GDP savings/investments/insurance/credit rate for our country will also rise.
  4. Access to MF is going to be brought to the phones and be made extremely convenient. For instance Paytm is launching its own version called PayTM Money It has already got half a million registrations for direct MFs. This is the same strategy used by Yu’e bao of Ant Financial. This is the biggest money market fund of the world now. The Chinese asset management industry is expected to increase 5x by 2025. The money market funds is the biggest driver for them approx 65-70% of AUM.
  5. I have actually observed in my job as well as an investor it is far easier to get an MF folio made online than to even get a simple prepaid wallet of an operator or a bank account. Sebi has something called Remote KYC, I am sure most of us would have seen this when we try to open an account with a discount broker whereas RBI mandates a physical OSV of KYC or a biometric scan. Agree that folio will get funds from a bank account but once a bank account is in place its a matter of few clicks to get up and running. So consumer friction is quite low and I trust this will even got lowered further within a few quarters.

On the valuation front why would not HDFC AMC price the IPO to the brim I ask myself. If in a developed market we were to take a company like Blackrock it trades at 14 times earnings and 2.4 times book. The industry average is 17 times earnings and 1.5 times book. It has a TTM operating margin of ~43%. Assuming its a mature company in a mature market actually its CAGR top line growth rate is ~11% which is fairly close to what Yogesh assumes for the next 10 years. I personally think this will be higher in India. This is not a fair comparison though and room for growth would be much larger at home.




Quarterly results is out now hdfc126066a-0dd3-4832-ba46-464cdb4c914e.pdf (2.0 MB)

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Does AMC make money during periods or depression and recession?
Have they made money in older economies like US during such situations?
Have they faced Exodus during bad times to the extent of crashing their profitability and return ratios?
How do they mitigate this risk?

I think low penetration or increase in penetration is good but it will reduce premium. Typically I would think an AMC earns from the expense ratio and it is greater when a fund starts. With increasing penetration, the expense ratio of same fund would reduce. AMC creates more funds to get better margins and then plays on volumes…I am thinking aloud what would happen during exodus…with reduction in volumes, will AMC be in aposition to increase its expense ratio with those chosing to stick in troubled times?

Does AMC makes profit from its investments also? Like Insurance companies? Or Profits on investments here belongs to the Funds unit holders only?

At present I am thinking why HDFC AMC and not HDFC Life for any incremental sum that I invest in any of two…

Disc: Invested in HDFC Life

It’s true that there are very less comparable US companies to any plain MF company in India. The US AM industry is so far ahead, that it’d be a crime to even begin making a comparison. However, what I meant was to look at how the immense competition in this space has evolved in the US. The following are some great articles to read up on, to understand this:



If you are asking about the assumptions, then I usually get some of my assumptions from Prof. Aswath Damodaran’s Useful Data Sets. In this specific case, I got the Terminal Period Margins from this specific file from his website: marginIndia.xls (69 KB)

The Professor uploads all this data on his website (For free!) every year. It may not be very accurate, considering how most of the data is targeted on the US, with APAC being a little sparse (However, there are India-specific data available here and there). But it should be good for approximation purposes (Which is what we’re trying to do with a Valuation). I made a thread on this initially, but there wasn’t much activity, so I didn’t bother updating it:

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There has been definite shift in how people are investing. Particularly the young sub 40 years junta. I believe it is no marketing gimmick. This is evident from the various places - the financial newspapers, growth of RIA’s, more people now planning for retirement etc.

The share of financial savings have indeed increased over period. Also now termed as “financialization of savings”:
Source: PNB Metlife Insurance DRHP

The MFs AUM has been increasing over the period of time:
Source: ASK Investment DRHP

More data points of low penetration, now improving:

Source: The Business Line

More inflow beyond Top 30 cities:

Source: The Business Line

The SIP book is also increasing: (RNAM)

… even the increamental SIP book are “persistent” with long term fund inflows: (HDFC AMC)

I feel that there is a shift of how Indians save over the years. From hoarding cash to investing in real estate/Gold to investing in financial assets. What other way to ride this wave other than investing in these themes? IMO there is a long runway ahead, of course with speed breakers.


Rest of the presentation was on a different topic, it was more of a hangout session ppt that a content heavy focused ppt. Hence I did not post the entire ppt here - just the parts relevant to the current thread

Going by the views posted here so far almost everyone agrees that the asset management business has a multi year growth path ahead, this growth will also come at healthy capital efficiency. In terms of corporate governance as well this industry is better off compared to most other industries since the actual AUM is under a trust with each unit holder being treated as a beneficiary. You already have multiple checks and balances in place (custodian, registrars etc), the only thing one will need to check for is how is the AMC managing its reserves and surplus - that’s where most of the effort on corporate governance check needs to be focused.

The key question here is not whether this industry will see wealth creators or not, it is are we betting on the right horse?

I think the research effort needs to be on

What separates one AMC from another?
What reasons can lead us to believe that AMC1 may do better than AMC2?
How does each of the AMC’s look at product portfolio and what is it that they are focusing on?
Can the distribution economics change over the next 4-5 years?
What are the parameters that your valuation methodology (which ever one you choose) is most sensitive to?
How volatile are these parameters and what can be the possible range of outcomes?
Is one better off choosing one horse or is one better off with a basket approach?

The biggest valuation risk is see here is that there is a second order effect one needs to consider - when the markets do down not only will the valuation of the company go down but also the actual business and cash flows. In most other businesses we own stock market corrections (unless caused by a recession) usually do not impact real business fundamentals all that much. For a capital markets business the real business gets impacted as well which one needs to buffer for, there is a cyclical component which one needs to be wary about. Chances are this may be a sine wave with higher crests and lower troughs