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Magazine Issues » June 2012

EXECUTIVE INTERVIEW: From India to the world

Praveen_JagwaniUTI International (Singapore) is readying a long-biased Indian equities fund. Stefanie Eschenbacher talks to Praveen Jagwani, chief executive.

"Eye-poppping" is how Cerulli Associates once described growth in India's asset management industry.

Its assessment, entitled Indian Asset  Management Profitability, also  highlighted that  the landscape had  changed dramatically since groundbreaking rules introduced in 2009  prohibited the  payment of commissions to intermediaries out of front-end charges on funds. This had  an immediate impact on retail inflows  to asset managers, many  of which  pulled out of the market.

Nevertheless, it appears that the fundamentals for asset management in India, including international houses that want to tap into  the  market, are broadly favourable.

Assets under management as a percentage of gross domestic product are  predicted to increase by 57.2%  by 2014.

UTI Asset Management Company is one of the largest retail asset managers in India, with more than 10 million investor accounts and assets under management of close to $12 billion (€9.6  billion). Established in 1964 as the Unit Trust of India by an Act of Indian Parliament, it has one of the largest market shares of domestic assets and  retail clients while also being one of the first  pension fund managers there.

India and beyond
As the Indian giant started to look abroad, it established UTI International in 1996. Head­ quartered in Guernsey, it has branches in London and Dubai.

It has  two subsidiaries, UTI Investment Management Company (Mauritius) and UTI International (Singapore).

Praveen Jagwani, chief executive officer of UTI International (Singapore), says his parent company has  a clear home advantage in India. But when it comes to broadening the  distribution network and gathering assets outside India, he faces the  same challenge that  other international fund managers do.

Indian equities, Indian fixed income and  Indian private equity are the core offering. UTI also  launched the first  ever India fund  outside the country in 1986, the Mauritius­ domiciled UTI 1986 India Fund.

Foreign asset managers have encountered more challenges in India  than  elsewhere in the world, owing to regulatory reasons. Though the  country has  various tax treaties, Jagwani considers the  treaty with Maurituis to be  the  most favourable one.

UTI International is about to launch a long-biased India equity fund. The Dublin­ domiciled fund  will launch as a Ucits structure on a Milltrust International managed account platform.

"Most regulators arem comfortable and familiar with the  Ucits scheme," he says. "Including North  America, Ucits funds are  sold almost everywhere, like the Middle East, Asia and Africa."

The idea of an Asian  regional funds passport scheme - which is currently being developed and  scheduled for launch in the  second half of this year - is interesting for Jagwani, though he says Ucits is so established that  it will be difficult  for Asia to develop a concept that is innovative and  competitive. One of Jagwani's strongest arguments for Ucits are that it is a well-established and trusted brand; the  funds can  be sold in many key markets; and the system gives asset managers access to a larger pool of capital, which makes gathering assets easier.

"Ucits is here to stay," he says. "Asia is less mature and  it is not one single, domestic market, which makes passporting a pan-Asian Ucits scheme difficult."

Local expertise
Selling the firm's India capability largely centres on the country's growing wealth and on a fund management team based in India.

Despite economic challenges, China has  overshadowed India in the pas  few years owing to its spectacular growth and emerging middle class.

"China is growing faster, but much  of the  growth has happened on the back of irresponsible lending. China's wealth is polarised, whereas India's is relatively more widely distributed," he says.

"China is building ghost cities and  miles of solar panels where the closest grid is 1,000  kilometres away. This is an inefficient allocation of resources."

In India, poverty is still widespread, especially in rural areas. Its economy, however, is growing fast, at least compared with  the  developed world.

The sub-continent is home to the  world's second largest population and prides itself with being the  largest democracy.

Jagwani says some stocks in India have delivered triple­ digit returns, making it a stock picker's market.

There are 7,000  listed stocks in India, he says, of which 1,200 are actively traded. Others are not traded or widely held because they are small or micro caps.

For about 200 of these stocks, research is available. "We cover 450 names, which gives us the ability to move up and down the  market capitalisation spectrum. This is a unique advantage."

Jagwani says on-the-ground research and  local expertise are  what  distinguishes UTI from  other international asset managers.

Conceding that  performance was somewhat subdued over the past  year, Jagwani points to the fact  that  emerging markets investments should be made for the  long term.

"As of now, we would create the  right vehicles and then collect the  money from everywhere," he says.

Jagwani has been chief executive officer and executive director for more than  three years, having previously worked in India, Australia, the UK and Bahrain.

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