Leo Puri, managing director and CEO of UTI Mutual Fund, has questioned the current practice of industry houses and banks running asset management business after they have grown in size and emerged over the years.
The UTI chief also pitched for shareholders of UTI — Life Insurance Corporation of India, State Bank of India, Punjab National Bank and Bank of Baroda, which together hold 74 per cent stake — for diluting their stake in the mutual fund and broad-basing its ownership structure through listing on the stock exchanges.
In an interview to The Indian Express, Puri said, “I do think in the longer term, having an industry largely owned by corporates and banks is not a healthy ownership structure. While they can promote these institutions, I don’t think they are the natural long-term owners of asset management businesses.”
The Indian mutual fund industry is now dominated by fund houses promoted by top industry houses and banks.
“It is not just UTI alone, all institutions in this industry will evolve their ownership pattern, and I think that will be driven by promoters unlocking value, and regulators should set norms for this. How are they going to realise value from the investments they made?” said Puri who was earlier Senior Advisor in McKinsey and MD of Warburg Pincus. UTI manages assets of over Rs 80,000 crore.
Currently, there are no restrictions on ownership in mutual funds. However, that is not the case with banks and insurance companies. “We have fairly well laid out norms for banks. We also have them for insurance companies. You can own only 5 per cent of a bank and you can go up to 10 per cent with the permission of the RBI and corporates cannot own banks. In insurance, corporates can promote insurance companies, but they have to divest after 10 years of licence,” Puri said.
Proposing a broader transition in ownership and shareholding in the mutual fund industry, Puri said, “If you look around the world you won’t find too many countries where leading asset managers are owned by industrial groups or corporates. There is an initial stage where people who have capital promote these industries. In the same way, banks or insurance were promoted. There is nothing wrong with that.”
“As they grow systemically important, it is not perhaps a healthy trend (for banks and corporates to continue). Look at the OECD countries, you will not find this structure. We need corporates and entrepreneurs to launch these institutions, but evolve norms for transition to more sustainable governance if they grow systemically important,” Puri said.
He added that UTI may get an opportunity to lead the way. “If we do we will certainly lead the way responsibly and create a model in terms of governance. It’s a broader issue,”
On the shareholders exiting from UTI, Puri, said, “Today we are in a situation where our shareholding structure needs to change. The regulator has asked us to resolve the conflict of interest.”
According to him, all UTI sponsors have their own funds and they have their own partners. “They are competing with us every day in the market. That should change in a constructive way that offers full value to the existing shareholders and rewards them for the support they have given us,” Puri said. He is clear in his view that it cannot be sponsored by institutions which compete with UTI, but does not mind if LIC holds a stake as financial investment. “If LIC continues to hold a small stake its a welcome scenario if LIC is a pure financial investor.”
Insurance regulator Irda permits an insurance company to hold up to 10 per cent in a company. LIC has a special dispensation to hold up to 15 per cent. On going public, Puri said, “Listing is a valid option. It has the option of offering price discovery and offering Indian investors an opportunity to participate in the future growth of UTI. The decision has to be made by the shareholders and the finance ministry.”