PMS industry calls for SEBI’s ‘new asset class’ governance

The Association of Portfolio Managers in India (APMI) has asked the market regulator to consider allowing PMS players to become investment managers for the “new asset class” that is currently in the making.

The request was part of the feedback sent to the regulator last month on the consultation paper, two people familiar with the matter said. This is significant because the document had singled out mutual funds (MFs) to become managers of the new asset class, whose minimum ticket size is expected to be ₹10 lakh, a fifth of that of PMS schemes and a tenth of that of alternative investment products.

Reducing the ticket size from the current ₹50 lakh has been a topic of discussion within the PMS industry for months now. Allowing PMS players to manage the new asset class could be especially beneficial for the boutique players who struggle to raise more than ₹50 lakh per client.

An email to APMI did not immediately get a response. “Prima facie, there is no real reason why the PMS industry cannot become a manager of the new asset class,” said Vicky Mehta, an investment analyst.

A head start for MFs

MFs and PMS players may be almost at par in terms of talent and skills of their fund managers, say market observers. That said, the MF industry manages a much larger pool of money, which is more prone to higher churn in terms of daily inflows and outflows. “This gives MFs an edge over PMS players. The regulator may also have other criteria in mind, such as net worth, which makes MFs the more suitable candidates to manage this pool at this juncture,” says Mehta.

PMS schemes manage over ₹9 lakh crore in assets under management (excluding EPFO ​​assets), compared to equity assets of over ₹30 lakh crore managed by MFs.

PMS players manage various niche products tailored to their needs. Many PMS houses also sell smaller ticket schemes in the form of ‘small cases’ under their own brand name. Small cases are portfolios of stocks or ETFs that follow a theme, strategy or objective.

“PMS players enjoy a lot of discretion in managing money and unlike MFs, they do not have straitjackets regarding scheme mandate, market cap categorisation and charges. The regulator should take this into account before allowing the industry to manage the new asset class,” said Siddhartha Rastogi, COO, Ambit Investment Advisors.

The rationale for the ₹10 lakh threshold is to dissuade retail investors from investing in the product, while attracting investors with mutual fund sizes of ₹10-50 lakh, who are attracted to unregistered wealth management service providers, the regulator had said in a consultation paper in July.

Schemes under the new asset class may offer long-short strategies and inverse ETFs that generate returns that are negatively correlated with the underlying index.