As fund houses gear up to make a splash with Specialized Investment Funds (SIF), a new asset class, sourcing the right talent could pose a conundrum.
SIFs can offer seven investment strategies—three equity, two debt and two hybrid. Each of these allow a short exposure of up to 25 per cent of the strategy through unhedged derivative positions.
Large fund houses already have a sizeable pool of research analysts and fund managers that oversee a variety of debt funds. Some of these resources could be deployed to manage debt SIFs.
“MFs have historically not managed long-short equity strategies, which may necessitate external hiring from prop brokers that dabble in long-short strategues, PMS and AIF players, and even hedge fund managers overseas,” said B Gopkumar,” CEO, Axis MF.
New opportunities
SIF opens up a new set of opportunities for fund houses to innovate and launch differentiated products, and may compete with PMS and Category III AIFs to an extent. The cost and the tax treatment of mutual funds is superior to that of PMS and Category III AIFs. In time, there could be scope for further product innovation as well.
“Fund houses will need to source talent from outside,” said G Pradeepkumar, former head of an AMC. “At the same time, not every AMC will be able to hire ready-made talent. Fund managers who are used to running only long-only strategies may need to develop the capability to manage long-short funds.”
This is also an opportunity for funds to groom young analysts and fund managers to switch to the SIF side of the business, added Pradeepkumar.
The new category could push up overall compensation levels over time. Unlike PMS and AIFs, however, SIFs will not have a profit sharing arrangement and will not be able to charge performance-based fees. This could pose a challenge in compensating SIF fund managers and AMCs will have to figure out a way around this. Fund houses are also awaiting clarity from the regulator on whether the “skin in the game” rules will apply to SIFs.
AIF and PMS
“AMCs could look at AIF and PMS players for hiring. The catch here is that compensation structures have to match up to what’s been offered to these managers. AIF managers, for instance, manage larger ticket sizes, have a profit-sharing element, and get attractive bonuses,” said Vicky Mehta, a mutual fund analyst.
The other alternative would be for fund companies to internally move some of their fund managers or investment personnel from their own PMS to SIFs. This is especially if the fund company believes that its PMS hasn’t quite gotten the traction that it should have, and if the SIF offering holds more promise, said Mehta.
