Sebi norms to hit MFs’ talent pool

The move by the Securities and Exchange Board of India (Sebi) to bring mutual funds (MFs) under the purview of insider trading regulations may make it difficult for asset managers to attract and retain top talent.

The industry could lose out to alternative investment funds (IDAs), portfolio management services (PMS), insurance companies and banks.

“Incremental talent can move to other industries such as AIF and PMS, which offer greater flexibility in fund management and offer higher salaries,” a senior fund official said on condition of anonymity.

In the past, a number of industry veterans like Kenneth Andrade and Sunil Singhania moved into the AIF industry. People like Samir Arora have created their own PMS firms.

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“When we go to preset one of the IIMs and tell them that they are going to record all their calls and WhatsApp conversations, what will their reaction be? Why will they come to us? a second fund official asked.

Sebi’s board gave its approval to include mutual fund unit trading through a separate chapter in the Sebi (Prohibition of Insider Trading) Regulations 2015 on Friday. This will detail reporting and monitoring requirements and establish a separate code of conduct for designated individuals.

“Asset management is a growing industry and an exciting career choice for many people. On the investment side, in particular, it offers a steep learning curve and good pay. So it’s not that people won’t come to the industry, but the appeal will certainly decrease,” said a third fund official.

Insider trading rules coupled with the in-game skin dictum, which requires that 20% of take-home pay must be invested in one’s own fund house schemes, could be a deterrent. India is the only market in the world that forces fund managers and other fund officials to invest in the schemes of their own funds, which must be locked up for a period of three years.

In 2020, Sebi had asked fund executives involved in fund investments to conduct all communications through recorded modes and channels. The intention was to curb illegal trade, but it had raised privacy issues.

“Now, with insider trading regulations coming into the picture, it will be difficult to invest in your own funds as redemptions will be subject to settlement under the new rules,” the third official quoted above said.

“The regulator can always come back and question my decision to redeem. Eventually the court or a higher court may acquit me, but I will be on public trial until then. The new rules will put an unnecessary compliance burden on honest people instead of creating a situation where criminals are worried,” the first official said, adding that the regulator should have powers such as wiretapping to zero in on the real ones. guilty.

Some experts, however, believe that the new insider trading rules will not stand in the way of attracting talent. “Fund managers move from mutual funds to PMS and IDAs for better pay and profit-sharing arrangements. That has been going on for many years and will continue to happen,” said Vicky Mehta, an independent analyst who tracks MFs.

That said, he believes there is an army of analysts in the country who aspire to be fund managers. This talent pool will continue to be available to MFs despite regulations regarding in-game skin and insider trading. “At best, mid-sized or small fund houses may find it a bit more difficult to pay top talent,” Mehta said.

Dhaval Kapadia, Director and Portfolio Specialist, Morningstar Investment Advisers India, agrees. “With the financialization of savings gaining ground, the MF industry is expected to record a good growth rate. IDA and PMS offer greater flexibility in terms of portfolio construction and products, but are subject to greater regulatory scrutiny. And there is nothing to say that AIF will not be included in the ambit of insider trading regulations in the future,” he said.
Average assets under management for the industry as at 31 August 2022 stood at Rs 39.53 trillion, up 54% over the last three years.

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