Finance: The Remaking Of UTI [Pg. 2]

For an organisation already losing share to aggressive new asset management companies, the troubles surrounding US 64 translated into a further erosion in the equity of the UTI brand. Questions were raised by most investors on not just the liquidity and resilience of the US 64, but also of other UTI schemes including the Monthly Income Plan schemes with assured returns. So, starting today (October 15), 12 MBAs from UTI's marketing division who hitherto spent their time writing offer documents for UTI's new schemes will head for the Trust's 54 branches. There, they will speak to over 75,000 agents and investors; compare the performance of UTI-schemes with those of other funds; and, in general, convince investors to stay with UTI.

That'll be a tall task: the US 64 is no longer perceived as a liquid investment, and its returns have fallen from a peak of 26 per cent in 1994-95 to 10 per cent for the year ended June 2001. But much of UTI's marketing woes related to its product offerings. Sending out MBAs to speak to investors, or sprucing up the advertising to shore up its image can only help at a superficial level. To really market its offerings, UTI will have to create schemes that address investor requirements, and then position them accordingly. It could also limit the size of each scheme so as to increase manoeuverability. That doesn't seem to be happening. ''UTI's equity funds lack differentiation and focus,'' says Dhirendra Kumar, CEO of mutual fund tracker Value Research and a long-time UTI watcher. ''Why should I buy a Mastershare as well as a Mastergain?''

A fund is only as good as its fund manager. And despite what Damodaran has to say about his fund managers (See What UTI Needs Is A Little Time) fact is there are several positions vacant at UTI, including that of Executive Trustee, there is no distinction between performers and non-performers, and employee morale is low.

By November 2001, Damodaran plans to fill his senior ranks with executive directors. Till barely six months ago there were eight such, now there are two. In a break from the past, the Trust will now recruit senior execs with specific skills as Executive Directors. And it is already working on a performance-based compensation template that will reward the better performers. Damodaran also talks of empowered fund managers, and fast track careers. Still, it seems unlikely that UTI, which isn't exactly the hottest fund to work for, will be able to attract the kind of talent private sector funds do. Says a chief investment officer of a foreign asset management company: ''The whole atmosphere is so different from that of a multinational company; it won't be easy for UTI to attract talent.

Corporate governance must surely be an issue at an organisation whose former chairman, P.S. Subramanyam in under investigation for his role in getting the fund to invest Rs 32 crore in Cyberspace Infosys. In his first month in the hot seat, Damodaran decided that the chairman would no longer be involved in investment decisions. Fund managers, who once had to toe the organisational line when it came to the buying and selling of stocks in the secondary market, have now been empowered to make their own decisions.

And a three member investment committee comprising executive directors will decide on the Trust's primary market investment including private equities. That's a sea change from a time when the chairman had the power to approve investments up to Rs 40 crore. UTI has also revamped the executive committee that decides on investments in primary market vehicles of amounts exceeding Rs 40 crore; the new committee has, apart from Damodaran and the chairman of IDBI, V.V. Desai, who's an advisor to ICICI.

The chairman of UTI is clearly working to a mandate. By the middle of July 2002, UTI should, if all goes well, be in better shape than it is right now. Then, the government can decide what it wants to do with the fund. The possibilities stretch from outright privatisation to the more-conservative induction of the foreign partner. After all, a healthier UTI will fetch a better valuation.

But is Damodaran doing enough? The man himself is keen to present a picture of the lone ranger, having cleaned up town, riding away into the sunset: ''I have a year to clean things up. After that, a professional manager will take over.'

Q&A with UTI Chairman M. Damodaran
"What UTI Needs Is A Little Time"

Q. There are suggestions that UTI should be privatised. And the Malegam committee report has suggested bringing in a strategic partner. To what extent will that help?

A. If the change in ownership or getting in a strategic partner at the asset management company level is to add value to the investor, then my fund managers are atleast as good as the others in the country. Some of the UTI funds like Mastershare or UTI Petro fund are doing better than their peers.

However, there is no denying the fact that there is a rot in UTI...

What UTI needs is a little time.

Are you moving towards providing more weightage to debt in your portfolio?

An arithmetic formula is not for a fund of the size of US 64. The portfolio has 66 per cent in equity and 34 per cent in debt. I think 50:50 would be ideal. In the long run equity has delivered, and I don't think we have much good quality debt. I can't invest only in government securities.

UTI was buying as the stockmarkets crashed post-September 11, 2001? Was it at the behest of the Centre to prop up the markets, a role UTI has played in the past?

We did some 'value' buying as we were sure that over time these investments would give us good returns. No government would ask UTI to prop up the markets today... UTI does not have money to do so.

UTI has investments in OTCEI and UTI Bank. What do you plan to do with these?

We plan to reduce the investment in UTI Bank to 40 per cent in compliance with RBI requirements, and then, to 26 per cent. As for OTCEI, the question is whether its relevant in today's scenario and whether it has outlived its purpose with DEMAT trading coming in.

Are you looking at revamping the asset management committees?

We will get people who are market-savvy. We don't want these committees to be a pensioner's paradise.

You are not a capital markets' person and you have been asked to do a cleanup job. To what extent do you think you will succeed?

Basically, it's a question of restructuring, boosting the morale, enabling people to perform and distinguishing performers from non-performers. Its just a question of time. Because of the external environment (read stockmarkets) it will take a little longer than we originally thought. But there is no doubt that there will be a turnaround.