There will be disruptions for sure for AMC’s with new age fintech entering AMC business , need to be seen if the Pie is big enough for all , however this will onboard more retail to equity path , so in the end Trusted names and performance will be the key drivers .
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Brand is very important… like debt and nfo series I believe they can not come near to HDFC …
They may come in traditional Aum… huge addressable market…
But it is not threat to HDFC AMC
if zerodha can do disruption… HDFC AMC can easily do… the same disruption…
Till today … In USA… lot of new ETFs are coming…no problem happened to vanguard and fidelity
These are just my views and assumptions… I Amy be completely wrong
Thanks
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Standard Life Investments Limited has changed its name to Abrdn Investment Management Limited effective from November 26, 2021.
Does anyone know how much fund did HDFC AMC raise with the recently concluded NFO (HDFC Multi Cap Fund)?
@zygo23554 your insights about the business have been great as usual - thanks!
I have been studying the businesses and have a few points of concern, and wanted to understand your and the communities thoughts on them:-
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What is the TER trend like in the industry in the last couple of months? Is there a source to monitor consolidated TERs for different fund houses?
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How can yields/margins for Indian AMCs be compared to yields in more developed markets from a long term perspective? If my view is that passive funds will increase share versus standard equity funds, should it mean margins will get substantially diluted for these players?
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Are AMCs even more prone to market corrections in any way? Say if the market drops, does that also reduce AUMs automatically for these companies thus enhancing the affect?
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With competition intensity increasing and large distributors/partners like NJ Invest/Zerodha launching/planning to launch their own funds - would this imply margin dilution in existing AMCs if they have to retain market share?
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Any specific reasons that stand out for the current downtrend in prices? Any regulatory changes that could have contributed to this?
I don’t mean to sound overtly negative - in fact I am evaluating taking up positions in these quality businesses in the current pessimism. But I did have these lingering doubts in the investment thesis - so just wanted to understand the views on the same.
Discl : Not invested
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These are declared on a monthly basis by each AMC on their website or one could check on an aggregator site. TER’s don’t change by much frequently, it will be driven by regulatory action once in a while but otherwise stay in the same steady range, other than 2-3 bps here and there
Developed markets where passive funds get more than 50% of the AUM work at much lesser yield. Hence comparison right now wouldn’t be fair since India is still a decade behind, though changing fast. If expense ratio were the only consideration, how can one explain the fast rise in AUM of PMS and AIF categories where the expense ratios are higher? Investors will happily pay up for differentiated products, it is just that one cannot run a large cap with 80% overlap with NIFTY and charge 2.5% any more.
Over the long term, it is a reasonable assumption that TER’s will be lower from where they are today. But that does not mean yield will fall proportionately, a good chunk of the cut in TER will get passed onto distributors where the squeeze will be bigger.
AMC AUM will fall when the market falls, this will be more pronounced for AMCs with higher equity proportion while being lower for those that have less than 40% from equity. This cyclicality is inherent in the business model, but once one casts the numbers one will see that the variability won’t be that high so long as AUM keeps growing at double digits overall.
It is a growing market that will offer space for many players. Differentiated products can charge higher expense ratios and keep margin dilution in check. Winning market share without distribution is not easy, the larger AMC’s will raise more AUM in a single scheme than can some of these newer AMC’s across all their schemes for some more years. Asset management is still a trust business, one cannot build a strong brand overnight.
No serious regulatory action since the 2018 TER cut and scheme categorization changes by SEBI. The price downtrend and underperformance is across many segments of financials, not limited to just this scrip alone. Financial services as a segment will have more price volatility than most other sectors, even for a market leading franchise. Some of the price drops in mid cap banks can scare the micro cap investors in the consumer sector.
But no particular views on the price. Getting the thesis right over the medium term is all we can focus on.
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HSBC is buying L&T MF. On the inorganic growth front, not much options are left for HDFC as most of the other companies (except the likes of ICICI) have lower profit margins, as any such acquisition might dilute their own margins.
I personally feel HDFC should aim for growing their AUM in a big way by acquiring big firms like Kotak or Axis, even if it dilutes the margins a bit
IDFC AMC is there and even IDBI AMC. If they acquire multiple AMCs, that could also be quite good. IDFC AMC is the 9th largest AMC in terms of AUM
IDBI has just 4000 crores AUM. That’s insignificant.
IDFC has 1.25 lakh crores AUM. But equity share is just 30,000 crores out of it and hence very low margins. Not sure if HDFC would prefer it as they tend to have more than 40-50% as equity AUM.
I understand but if they increase their AUM and as the marginal costs are very low, the operating leverage that plays out will be very high. If they take on the existing employees full time then the costs won’t be as low. But costs like fees to RTAs will fall massively as CAMS takes lesser fees as the AUM keeps on increasing.
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Looks like the Multi cap fund NFO has raised about 4300 crores.
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As you are studying AMC Businesses, I would suggest you go through the below links to get a broader understanding about the market opportunity.
The growth opportunity comes from B-15 cities as T-15 are already 75% penetrated. Now in B-15, people needs hand holding as they are new to this asset class. Here comes the role of distributors and banks who have physical presence. The bank backed AMCs will do well for the simple reason that it is likely that B-15 customer gets confused if HDFC Bank is selling SBI MF. I came to know this after talking to a distributor. Can Fintech replicate this having unit economics in mind is the first question to think about?
- BS BFSI Insight Summit - CEOs & CIOs session on Mutual fund - YouTube. The video starts around 44 minutes with the presentation from Usha Thorat who was earlier deputy governor of RBI and currently Chairperson, Mutual Fund Advisory Committee of SEBI. You will get all the data like this.
Discl - Invested. PF
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Yes, 4000 odd Cr is a decent amount but below par compared to what SBI and ICICI Pru AMC’s have been able to raise in similar NFO’s.
This should give us an indication of where the new management will focus it’s efforts next - “energizing” their channel sales team. The product launch pipeline has already been streamlined and should keep cranking out new offerings periodically from here.
It makes sense to track business actions from here, they will be lead indicators for how economics will move over the next 3-4 Q’s.
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Yes, it’s below par. But at least much better than their previous NFOs in 2021 where they were able to raise much lower amounts only. So I am seeing this as an improvement 
It could also be due to the nature of the fund that determines investors interest.
Only 3 NFOs raised funds above 5000 crores last year - SBI Balanced Advantage (14000 crores), ICICI Flexi cap (9000) & NJ balanced advantage (5000+). Navneet Munot kept mentioning that these NFO were able to raise higher amounts along with higher costs. I am not sure what he meant by that but I have also seen some news where SBI & ICICI have been pushing their customers to convert FD etc to these NFO. Not sure how true it is though.
Nevertheless, the new CEO needs sometime to settle down, re-organize things. I hope he was able to do so as he is nearing his first year anniversary and hopefully things look up moving forward
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Will it be a good idea to invest in CAMS than in the many listed AMCs?
Discl: Invested since IPO, painfully watching SBI MF overtake market leader position and share price eroding.
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Axis MF also came out with a multi-cap fund NFO in the same time as that of HDFC and they seemed to have raised higher amounts - at around 5000 (Axis) vs 4300 (HDFC). It’s quite difficult to understand how other big AMCs are able to generate more funds than HDFC which used to be no. 1 just less than 2 years ago
all these findings are shaking the confidence day by day…and hdfc AMC management AMC is also not coming out with any clarity on future course.
Few points come to mind, I maybe wrong -
- Recommendations from various agencies (digital or otherwise) not featuring HDFC - influences current generation of do it yourself investors as well as not so do it yourself ones
- DIY investors seeing short term performances and hence shun HDFC
- Herd mentality & lack of patience among investors - A viscous cycle with poor short term performance of HDFC (3 years and less)
HDFC AMC according to me need to focus on only one thing importantly - to generate returns for its unit holders better than others over medium to long term - 3, 5 & 10 years plus…if they do this consistently, the cycle will come back in its favor, if not then its a tough decade ahead…
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Very true. But I have not seen many of the SBI schemes to be beating others in performance. It’s mostly the smaller MFs that have performed. But SBI juggernaut keeps rolling. (They were doing similarly well with the life insurance division couple of years ago giving tough competition to HDFC LIFE but somehow HDFC hung on and maintained their position (even with a new CEO coming in).