It's been official for some time now that Standard Chartered Mutual Fund (Stanchart Mutual Fund) has been taken over by UBS (Union Bank of Switzerland). You might say it's a win-win situation for both parties, one wishing to exit a business that has no place in its global scheme of things, the other wanting to enter the lucrative Indian mutual fund industry.
At Personalfn, we can think of a third reason for this deal -- the gullible Indian investor, who is likely to invest in anything that is thrown at him. Stanchart Mutual Fund learnt this the easy way (and as the saying goes is laughing all the way to the bank); no doubt UBS will also learn this soon enough.
While fund houses seemed to have unraveled the Indian investor, what stumps us is why hasn't the Indian investor unraveled the fund houses as yet. As if the lessons learnt from the blunders of Morgan Stanley Mutual Fund and CRB Mutual Fund weren't enough, you still have the Indian investor making the same fundamental errors while investing.
How else do you explain the fact that a fund house like Stanchart Mutual Fund, which did not have a rupee in equities under management until a few years back, launching one equity NFO (new fund offer) after another with some of the most improbable themes (including a thematic fund that targeted investments mainly in stock IPOs)?
Equally striking is the response the NFOs received from the domestic investors. Not a bad achievement for a fund house which just a few months before it went into equities, proudly claimed to be 'equity-free' and without 'a single rupee in equities' as if equities were some kind of virus or disease. If equities were in fact a disease, then Stanchart Mutual Fund seems to have taken a very dramatic liking to it.
How else can one explain all the equity NFOs launched in rapid succession by a fund house that had shirked equities like the plague? Now for a more intriguing revelation. India was the first mutual fund market where Stanchart Mutual Fund ventured into equities; until then equities had no place in their global scheme of things.
The fabulous response to their NFOs must be seen in this backdrop. Of course, we are not alleging that this was not conveyed to the investor or anything like that; in fact the fund houses' literature communicated this explicitly.
For Personalfn, there was always a question mark on Stanchart Mutual Fund's fund management prowess on the equity side. That is why their equity NFOs never featured in our list of recommendations.
You would expect Stanchart Mutual Fund's newfound love for equities to blossom into something more promising for the investor. However, that was not to be. The fund house sold out to UBS for, what we believe is, one of the more lucrative deals in the domestic asset management business.
Nothing wrong with that, if you get a good price for a business, economics dictates you make the most of it. Now for the most interesting part - shortly after the deal was finalised, there was a mail sent by the Managing Director of Stanchart Mutual Fund explaining the rationale behind selling the business to UBS.
What riveted our attention were a couple of lines, which outlined the reason for discontinuing the business. We reproduce the same below: 'SCB (Standard Chartered Bank) had acquired the Mutual Fund business through its purchase of ANZ Grindlays Bank in India in July, 2000. Mutual Fund management is not a core business for SCB globally and with increasing sophistication of the Mutual Fund industry in India, SCB believes that UBS can offer greater value to investors of Standard Chartered Mutual Fund (SCMF).'
Even as we write this note, Stanchart Mutual Fund has lined up NFOs one of which is open for subscription. As and when Stanchart Mutual Fund's take over by UBS is finalised, investors in this NFO as also in all other schemes of Stanchart Mutual Fund, will get a letter giving them the option to either continue or exit from its mutual fund schemes.
We wonder if it's a good idea to launch NFOs with the knowledge that you will soon be going back to the investor giving him the option to redeem the mutual fund. For that matter we wonder if it's a good idea to so actively pursue a business which 'is not a core business for the parent globally.'
Even if the NFO offer documents were already filed with SEBI before signing the deal, it is not mandatory for the fund house to actually launch the NFO. Another question that the Indian investor must ask himself is what could possibly have made Stanchart Mutual Fund experiment with India with regards to a business that was not core for the parent?
Maybe its because Indian stockmarkets are 'hot' and the economy is on a roll and mutual funds are a great way for the Indian investor to participate in this growth and other factors that appear fundamental. But could it have anything to do with the Indian investor's gullibility for anything new and 'imported' and his tendency to dive headfirst into it with minimal research and questions?
Our view is that it's probably a bit of both, but if it is the second reason, then the Indian investor has much to learn. Another question that he must ask himself is whether the regulator - the SEBI (Securities and Exchange Board of India) could have done something about it?
Maybe something in terms of compliance that makes it that much more difficult for first timers (for who fund management is not core) to launch mutual fund schemes and then exit the business like they were traders (buy low, sell high clock a profit with the difference) instead of asset managers (who manage the investor's money for the long term and only when it is their core business).
The questions are many and the answers, if there is enough resolve, are not difficult to find. For the Indian investor we have some pointed advice: Research your investments well, ask a lot of questions, challenge every argument and invest only if there are compelling reasons to do so. Don't let any company or fund house make money at your expense.
Don't be enamoured of every investment that is 'new' and 'imported'; till date experts are yet to establish any correlation between investments that are new and imported and the investor's financial well-being.
Involve a competent and financial planner to help you with your investments. The investment world is getting more complicated by the day, and it is unlikely that, on a long term basis, you will be able to take out time from your schedule to devote attention to your investments.
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