Has your asset book grown mainly through acquisitions or organic growth?
Edelweiss has always been open to acquiring good quality assets and quality talent. We seek like-minded synergistic associations with partners who match our philosophy, values and business priorities.
When our Asset Management Company (AMC) business took over JP Morgan's fund towards the end of 2016, we acquired about Rs 4,000 crore, and the MF size was about Rs 6,000 crore. Today our MF business has doubled the Assets Under Management (AUM) to close to Rs 13,000 crore.
Similarly, when we took over the Ambit Alpha single-scheme fund around the same time, the book was Rs 300 crore (approximately) which stands nearly at Rs 1,200 crore today.
Edelweiss acquired Forefront in the year 2014 at a time when the alternative investment category was quite nascent. Today, Edelweiss is a large player in the alternative space, both public as well as private. At the time of acquisition, Forefront was around Rs 150 crore and today the size of the public markets alternatives business would be close to Rs 6,000 crore. So we have benefited from inorganic as well as organic growth.
How would you look at Edelweiss Mutual Fund in the overall context of the equity mutual funds space?
We are extremely quality and liquidity conscious and it is our priority while selecting stocks for investment. Last quarter, we added about Rs 500 crore in open-ended equity funds (April – June 2019) in a difficult time for AMCs.
We expect to be among the top ten AMCs in the last quarter in net equity flows. This is a testimony to our philosophy being acknowledged and accepted among distribution partners and investors.
Our offering is a mix of large, medium and small cap funds. We launched a small cap fund this year, in the midst of a volatile environment for the equities segment.
We had a NFO of Rs 220 crore and the current size is close to Rs 380 crore which indicates that investors have kept putting in money. For investors in this fund, we have introduced an innovative feature— the STeP feature.
The money put into the fund by investors is deployed by us in phases, which dilutes the volatility impact to an extent. Volatility is one of the major concerns for investors looking at the small cap space. This step has assuaged their concerns.
How does the macro perspective for equities appear right now and over a longer period?
Last 9-12 months, have been really tough for the financial sector as a whole, and equities too have felt the heat. The result is a liquidity crunch and a credit crunch situation, which is one of the longest the markets have ever experienced. Some positive measures have been announced in the recent budget.
On the positive side, this period has seen a greater level of maturity in the equity funds space. Throughout the period when mid caps were getting beaten down, investors showed enough maturity to keep investing money. If you see our own SIP book today, it is nearly around Rs 60 crore against Rs 5 crore (approximately) in 2017.
Our overall equity assets (not including the arbitrage fund) stand at Rs 4,600 crore, against a figure of Rs 1,200 crore in early 2017.
From a sector viewpoint as well as from our business viewpoint, funds are flowing into new asset classes. For instance, crossover funds, which focus on pre-IPO and IPO investments, are an important emerging asset class.
Demand is very strong and will get better, as the product understanding improves amongst the investor class. We raised Rs 1,700 crore in our first scheme and Rs 500 crore (approximately) in the second.
What are the challenges and opportunities in the current environment?
Mutual funds have been acknowledged globally as a powerful tool to attract retail money and the current status of SIP book of Rs 8,000 crore testifies it. It is, in its own way, a movement of progressive financial inclusion, and the key is to keep continuing.
When you look at the equity mutual funds ratio vis-a-vis GDP, India has a figure of 4-5 per cent, whereas the global average is 40 per cent.
If you look at the notional GDP growth rate, then India's GDP is set to double by say 2030, and the equity mutual funds industry has to grow much beyond i.e. the 4-5 per cent figure. We have miles and miles to go.
Another big challenge we face today is job creation and this has to be actively and rapidly addressed. The key to that is looking at friendly policies for SMEs.
This sector is the fulcrum of the economy, and needs to be strengthened and made robust, then we can achieve growth and employment targets. Likewise, we also need to have speedy resolution to the Non-Banking Financial Company (NBFC) issue.
Quick commentary and action are the tools which the authorities must deploy in tandem to calm down the fears in the markets. When both are used in sync, as Mario Draghi (President of the European Central Bank) had demonstrated at the time of the Euro crisis, confidence is restored speedily.