Industry Trends 24th February 2015
Consolidation is not the dominant industry theme, competence is
Vijay Venkatram, Managing Director, Wealth Forum

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A few days ago, we carried an article titled "Mirror, mirror on the wall, who's the fastest of them all?", which looked at AuM growth in 2014 by AMC. In the second part of this article, we bring you a deeper analysis - by asset class. Our mirror on the wall gives us rich insights, not just into who's leading the pack by asset class, but some thought-provoking trends that seem visible from these numbers.


Here's a topline summary of our findings for the 3 asset classes - equity, debt and cash:

Equity : The saying "A rising tide lifts all boats" is perhaps playing out in equity oriented funds (Equity+ELSS+Balanced). The heartening trend from an industry perspective, is that smaller players grew twice as fast as the larger ones, belying the notion of continuing domination by the top 10 players. This bull market seems to be clearly giving an opportunity to many more players to collect equity assets and build meaningful businesses. Its competition, and not consolidation that seems to be the order of the day in this asset class.

Debt: Debt is a story in complete contrast to equity. Out of 42 fund houses analyzed, 20 gained AuM and as many as 22 lost debt AuM (all fixed income funds other than ultra short term category) during the year. Its not as if only small players lost assets : each of the 3 categories (Leaders, Challengers and Aspirers) have their share of winners and losers. Overall, the top 10 players accounted for 82% of industry assets, 88% of incremental AuM during the year and an astounding 96% of incremental AuM in the last quarter (Oct-Dec 14). In sharp contrast to equity, the debt asset class is clearly witnessing significant consolidation. Distributors and investors are increasingly getting highly selective about fund houses that they wish to invest debt money with.

Cash: Industry dynamics in liquid/ultra short term funds is completely at variance with what we see in debt funds. The grip of the top 10 players is considerably less, and increasingly, smaller companies seem to be getting higher share of incremental AuM. A look at absolute AuM growth during the year reveals much less polarization in favour of a select few - as compared to other asset classes. Ultra short term funds are perhaps seen as a category with the least differentiation in returns or fund management styles, and therefore the easiest among asset classes to seek allocations from corporate and institutional players. What remains to be seen is whether this toe-hold that smaller firms are capturing in the cash segment enables them to make a pitch for more profitable debt funds allocations from the same investors. Evidence in 2014 does not as yet indicate such a trend.

2014 equity champions

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The star of 2014 in the equity space clearly was ICICI Prudential, which grew its equity book by a huge 128% - almost twice the pace of the Leaders group. The absolute growth in AuM during 2014 was almost as high as the reigning No.1 - HDFC, although ICICI Pru started the year at just around half the equity book size as HDFC. Birla Sun Life and IDFC were the other 2 in the top 10 who grew at 90%+ rates - considerably higher than the industry growth rate of 77%. Product categories included in this table are equity funds, ELSS funds and balanced funds. What is not included here are ETFs and FoFs.

The Challengers group lived up to the name - challenging the leaders by growing AuM by 133% - twice the growth rate recorded by the Leaders. Leading the pack in the Challengers group is JM - which, as we discussed in the earlier article, perhaps owes the growth to a couple of tax break oriented initiatives rather than a broad based year round effort. Five players in this group crossed the century mark in terms of growth rate, with Axis topping the list at 300%, followed by Canara Robeco, Religare Invesco, Mirae Asset and Kotak. Clearly, distributors and investors are willing to look beyond the leaders in their quest to invest with alpha generators in this bull market.

The Aspirers group grew by an equally impressive 138% - belying the notion that small is irrelevant. Players like Motilal Oswal and Edelweiss are demonstrating eloquently that there is place for differentiated offerings and distinctive positioning in this market while fund houses like JP Morgan and BNP Paribas have posted impressive growth on the back of robust fund performance.

The message from the growth trends in equity AuM is heartening indeed : the market place is willing to reward excellence - excellence in fund performance and excellence in fund positioning. There is enough room for expertise to blossom in this market - irrespective of size or brand considerations.

2014 Debt Champions

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The story in debt funds is starkly different from what we saw in equity funds. Even among the leaders, the disparity in growth is pronounced : the group grew at an average of 13%, but this average includes a range from +34% to -19%. Divergence is the key theme across not just the leaders, but also in the Challengers group and the Aspirers group. FT grew fastest among the Leaders, with 3 other majors - HDFC, Birla Sun Life and ICICI Pru growing considerably faster than the industry average of 12%.

Among the Challengers, Axis put up a commendable show with a 58% growth in AAuM. Axis has the distinction of topping the debt and equity growth charts (if you were to discount JM in equity growth) among the Challengers group - probably a signal that Axis is preparing to move up from being a Challenger to a Leader, in due course. Overall, the Challengers grew slower than the Leaders, while the Aspirers actually shrunk AAuM by 10% during the year. In the 22 member Aspirers group, 8 grew their debt AAuM, while 14 saw a reduction in AAuM during the year. Clearly, consolidation is happening within the debt segment, which is witnessing huge churn - churn, which is painful for some, and bountiful for others.

2014 Cash Champions

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Cash as a segment is starkly different in terms of growth trends as compared with debt funds. The Leaders group has names that do not feature as leaders in equity and debt segments. The gap in absolute AAuM growth among the players is a lot less in the cash segment as compared with the other two segments. As mentioned earlier, it appears that distributors and investors are not nearly as choosy in the cash segment as they seem to be in the debt segment, perhaps because cash as a segment is not seen to be very intensive on fund management expertise.

To conclude

Three asset classes and three very different growth stories in 2014. The sharp differences in growth patterns among the three asset classes points out to a clear conclusion: its not just a handful of brands that are garnering all MF assets across all categories. Fund houses that are able to differentiate themselves and demonstrate competencies in individual asset classes, are able to make a mark for themselves, and win allocations, despite a highly competitive market place. Contrary to a belief that consolidation is the dominant industry theme, what seems to come out clearly is that competence is getting recognized and rewarded in the market place.


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