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Mirror, mirror on the wall, who is the fastest of them all?

The Mirror Report 2016

Vijay Venkatram, Managing Director, Wealth Forum

9th January 2017

In a nutshell

We present the 3rd annual edition of our "Mirror Report", which throws a spotlight on AuM growth of all fund houses for the calendar year gone by. This year, we also present a report card for 3 year growth - which covers the momentum period of 2014, 2015 and 2016 - three years in which industry AuM more than doubled from Rs. 8 lakh crores to just under Rs.17 lakh crores. Which fund houses have leveraged this huge growth wave better than others? Has the gulf between big and small fund houses increased in this huge growth wave? Has a rising tide indeed lifted all boats? Which fund houses are the growth champions of 2016? The Mirror Report 2016 provides some insights on all these issues.

Continuing our tradition of publishing "The Mirror Report" every January, we present the findings of the Mirror Report 2016, where we analyse fund house wise AuM growth performance for the calendar year gone by.

Previous Mirror Reports: Mirror Report 2015, Mirror Report 2014.

Two areas of focus: 1 year and 3 year growth

This year, we put a spotlight not just on the 1 year growth numbers, but also on growth over the last 3 calendar years: 2014, 2015 and 2016. In these 3 years, the industry's AuM has nearly doubled - from Rs. 8.7 lakh crores in Dec 2013 to just short of Rs. 17 lakh crores in Dec 2016. To put this in perspective, what the industry garnered in 20 years of its existence from 1993 - 2013, it added in just 3 years - 2014, 15 and 16. All three years were big years for the industry, with 25% to 28% annual growth in each of these years. Has this massive rising tide lifted all boats? Which fund houses have crested this huge growth wave and which ones have failed to capitalize on the big move? Is the divide between the big and small fund houses increasing in this growth wave or diminishing? The Mirror Report 2016 takes a look at these issues first, and then turns its attention to the growth numbers for the calendar year 2016.

The groupings for fund houses remains the same as previous years: the biggest 10 players are clubbed under the "Leaders" group, the next 10 under the "Challengers" group and the rest under the "Aspirers" group.

2016 saw three mergers / takeovers getting completed - Reliance completed its acquisition of Goldman Sachs schemes, DHFL Pramerica completed its Deutsche transaction and Edelweiss completed its J P Morgan assets takeover. In order to correctly reflect growth in underlying businesses on an organic basis, we have regrouped earlier year numbers to reflect the joint businesses. This prevents AuM inflation due to takeovers being shown as business growth, as we look at growth of the combined businesses over 1 year and 3 year periods.

Riding the big wave: 3 year performance report

Within each group, the report is sorted in descending order of %age growth in AuM over last 3 years. Fund houses topping each category are the ones that rode this huge growth wave better than others.

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Challengers are indeed posing a challenge

Before getting into individual names, a word on category performance. While the Leaders group grew its AuM by 99% over these 3 years against an industry average of 94%, it is heartening to note that the Challengers group rose to the challenge, growing almost at the same clip, at 97%. The situation in the industry of yesteryears, when the top 5 grew much faster than the rest, has now become a lot more broadbased. Investors and distributors have clearly signalled an appetite for fund houses beyond the top few, which augurs well for the industry.

The real strife for the industry is in the Aspirers group, which as a whole significantly underperformed industry average. This set of 20 players perhaps has not more than 10 that can be seen as competitive and relevant, and perhaps at least 10 that run a real risk of becoming irrelevant. When even a rising tide does not lift your boat, you got to be very concerned about your boat.

ICICI Pru and Kotak are the 2 big winners in the Leaders group

Topping the Leaders group, unsurprisingly, is the industry leader - ICICI Prudential, with a very creditable 135% AuM growth over the last 3 years. These 3 years have seen it climb from No 3 spot to No 1 spot. It clearly laid out the ground work very well ahead of the big market growth, to harness the growth wave better than most.

Kotak MF under its new leadership is also racing ahead of the market, and its 2016 growth number of 50% suggests that its pace is accelerating rather than slowing down. SBI MF is another star performer - but more about them in the 1 year performance discussion as 2016 has been SBI MF's year. Birla Sun Life MF has grown much faster than the industry average on the back of robust fund performance and much stronger market connect (distributors and investors), and is now posing a serious challenge for the No 3 spot in the industry. HDFC MF seems to be overcoming the speed bumps it faced on the equity side, and had recorded faster-than-industry growth despite this, which is creditable.

Though Reliance MF's AuM has grown almost at the same rate as the industry over the last 3 years, some part of that growth is due to the Goldman acquisition. When comparing the combined AuMs of both businesses over the last 3 years, growth appears to fall short of industry growth rates, which will be disappointing for this industry major.

Four other fund houses among the top 10 grew much slower than the industry in these 3 years. Of them, DSP Blackrock seems to have put the worst behind it, with a very impressive growth performance in 2016. The other 3 leaders - UTI, FT and IDFC - need to introspect and take corrective action. IDFC now has a new leadership in place and all eyes will be on them as they attempt to play catch up. FT's fixed income business continues to suffer, and is a big contributor to the overall underperformer tag.

Axis is the brightest star among the Challengers

In the Challengers group, while on a standalone basis, it would appear that DHFL Pramerica's AuM has grown the fastest, that's not the case if you combine the AuMs of Pramerica and Deutsche 3 years ago and compare it with the merged entity's numbers as of Dec 2016. The league topper - Indiabulls' growth is largely on the back of 2016 AuM growth in cash funds and to a lesser extent in bond funds - and is not really reflective of any growing market appetite for the fund house - at least not yet.

The big star in the Challengers group is Axis MF, which has grown at more than twice the already impressive industry average. Based on its blistering growth rate, it could pose a serious challenge for the No 10 spot, and could well be in the "Leaders" group when we publish this report, same time next year. L&T MF has grown commendably, with a faster than industry number on the back of sound investment performance, while Tata MF has grown marginally slower than industry.

Mirae and Motilal Owsal - poster boys of the Aspirers group

In the Aspirers group, Edelweiss' numbers are difficult to draw conclusions from. While the base business of Edelweiss has been growing rapidly albeit from a small base, it suffers when the combined AuMs of J P Morgan and Edelweiss are compared over this 3 year period, as JPM lost significant assets prior to the acquisition, during this 3 year period. Nevertheless, the acquisition does pitch Edelweiss as a mainstream player, having got critical mass post acquisition.

Motilal Oswal and Mirae Asset have grown incredibly in the last 3 years - and are both fantastic examples of what "riding the wave" is all about. Both concentrated on creating excellent equity offerings, and when equity appetite grew in the market, they were rewarded with disproportionate market shares that lifted their boats and transformed them from niche players to mainstream contenders in the equity space. The faster-than-industry growth of Quantum is an important signal: though small, there is a growing tribe of direct investors who are willing to invest with a fund house with robust long term equity performance and strong ethical values, even if it does not have any distribution support or a well recognised brand.

Stars of 2016: 1 year performance report

We continue with last year's format for analysing 1 year performance - which is on the basis of a weighted average AuM growth number. The table below shows AuM growth in 2016, followed by its break up into equity, debt and cash, and then a weighted average number. The weights applied are 1.5x for equity, 1x for debt and 0.5x for cash - the same as last year. This allows us to put a spotlight on equity, while reducing the spotlight from cash funds - which therefore reflects more accurately, growth in higher fee, retail assets.

The industry grew at a very healthy 26% at an aggregate level, which follows two strong years 2014 and 2015. It's a dream run for the industry - one that every participant will hope will continue in the years ahead, even as some sceptics will start thinking about mean reversion.

The Leaders group's grew faster than others at 27%, followed by the Challengers at 24%. The Aspirers group continues to trail significantly, managing only a 11% growth. Only 5 of these 20 firms grew faster than the industry.

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The big winner of 2016: SBI MF

Topping the league table among the Leaders is SBI MF, with its impressive 41% AuM growth translating to a huge 63% on a weighted average basis, due to the high salience of equity assets that spurred its growth. In fact, its equity AuM growth of over Rs.26,000 crores, leaves the rest of the market far behind, with the second place at a much lower number of Rs.18,000 crores. SBI MF tops the league table despite a marginal fall in cash assets, which makes its performance all the more impressive. Strong all round fund performance in its equity range and strong distribution engagement are clearly paying off for SBI MF.

Kotak MF posted a strong all round performance with impressive growth in all 3 asset classes, and a very strong 50% growth number for 2016. Clearly a fund house on the move, and one that competitors will do well to track closely. DSP Blackrock is the turnaround story of 2016. The overhaul of its fixed income team is clearly delivering the desired results in terms of AuM growth, and the young fund managers who are now managing some of its flagship equity funds are delivering sound performance which is being noticed by the market. At 53%, its AuM growth for 2016 is at the top of the Leaders growth league table, though it comes in at 3rd spot on a weighted average basis, due to the higher proportion of fixed income and liquid assets that drove its growth. Birla Sun Life and ICICI Prudential posted healthy above-industry growth rates during 2016, with HDFC, Reliance and UTI falling marginally short of the industry's healthy growth rate of 26% for the year. FT and IDFC, as discussed earlier, have their work cut out in 2017, to build and then sustain business momentum.

In the Challengers group, looking beyond Indiabulls for reasons already discussed, we find L&T and Axis tied for the actual league topper spot, with 46% growth on a weighted average basis. LIC Nomura's growth appears lop-sided with debt and cash funds shoring up growth. Tata has posted a well rounded growth, though its overall growth has been lower than industry average. Among the Aspirers group, Motilal Oswal, Mirae Asset and Canara Robeco have grown their equity books impressively in 2016. Principal's seemingly disappointing performance may not be so disappointing for the company - as it has lost low fee cash assets, but added higher fee equity and debt assets, which perhaps leaves the bottom line in better shape than a year ago.

To conclude

Its been a great run over the last 3 years for the industry, and 2016's growth rate coming in higher than the previous 2 years seems to suggest that growth is accelerating rather than slowing down as the base increases. Lack of scale is no longer the key issue for the industry - managing growing scale is rapidly becoming the central theme. Around 30 of the industry's 40 players seem to be riding this growth wave successfully - some obviously better than others - as will always be the case. There are at least 10 players in this 40 member industry who are rapidly running the risk of becoming irrelevant players despite huge industry tailwinds.

Wealth Forum congratulates the league toppers on the 3 year and 1 year performance charts. It is a very competitive market, and coming out on top calls for a special effort. We hope the industry's growth momentum remains robust in 2017 and beyond, and importantly, we hope the industry is able to build a truly inclusive model that takes all its intermediation channels along with it in this promising growth journey.


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