The board of directors of UTI Asset Management Company sat on a proposal by the trustees of the fund, UTI Trustee Company, on the issue of addressing the conflict of interest by bringing down the stake of four public sector sponsors in the UTI AMC below 10 per cent in line with the norms of the Securities and Exchange Board of India (Sebi), a top-level official said.
The board of UTI Trustee Company had asked the board of AMC to prepare a road map on aligning the equity stake of sponsors as required by the Sebi and related issues like the IPO, the official source, who preferred anonymity, said.
“However, the board of the AMC sat on the proposal. They didn’t do anything. UTI MF was also prevented from launching an IPO. Sponsors could have benefitted from the IPO… they would have got ten times more than they invested,” he said.
UTI Mutual Fund is promoted by the four leading sponsors — State Bank of India, Life Insurance Corporation, Bank of Baroda and Punjab National Bank — with each of them presently holding a 18.24 per cent stake in the paid up capital of UTI AMC. T Rowe Price Group Inc (TRP Group), through its wholly-owned subsidiary T Rowe Price International, acquired a 26 per cent stake in UTI Asset Management Company. “As these four institutions are also running their own asset management companies (AMCs), there’s a conflict of interest. They were brought in as a temporary arrangement. UTI MF should be a widely held listed fund management company,” he said.
A mutual fund has four arms: Trustees, AMC, sponsors and custodians. While the trustees of the mutual fund hold its property for the benefit of the unit holders, supervise the functioning of the AMC and report to the Sebi, the AMC manages the funds and investments in various schemes. Sponsors act shareholders and appoint nominees on the board of the AMC while custodians hold the securities of various schemes in its custody.
According to him, sponsors can’t ask T Rowe Price to reduce its 26 per cent stake in UTI MF as there’s no conflict of interest in its operations in India. “They don’t run any AMC in India unlike the four PSU sponsors. The four sponsors now want the deadline for compliance to the Sebi norms to be extended… the current deadline is March 2019,” he said.
The market regulator had stipulated that the sponsor of an AMC with more than 10 per cent equity stake can’t hold a similar stake in other AMCs. The four Indian institutions which together hold 74 per cent stake in UTI AMC have opposed the continuation of Puri as MD of UTI MF. Puri’s term will end on August 13. However, T Rowe Price which wants Puri to continue as MD moved the Bombay High Court earlier this week for retaining Puri and reduction in the equity stake of four Indian sponsors.
LIC and SBI had earlier conveyed separate proposals to the government for the takeover or merger of UTI MF by their mutual fund arms. However, these proposals did not get the government approval.