As part of our continuing campaign on poor disclosure of PMS data, we find that many PMS companies, including some of the biggest, have failed to disclose their schemes and performance on their own websites, despite a clear direction by SEBI
The entire capital market regulation is based on disclosure, and yet, the Securities Exchange Board of India (SEBI) has made little effort to ensure that portfolio management services (PMS) companies disclose meaningful and easily accessible information about the schemes and their performance, and thus, comply with PMS regulations for disclosure. To enable greater transparency and to get up-to-date information on PMS, SEBI directed PMS companies to upload the disclosure document on their respective websites. The disclosure document not only contains performance data, assets under management (AUM) but also balance sheet information, details of the portfolio manager, etc.
In its continuing research on PMS performance and disclosure, Moneylife has found out that most PMS companies, including some of the biggest names in Indian finance— ICICI Prudential Asset Management Company (AMC), Motilal Oswal AMC, Kotak Mahindra AMC, UTI AMC, Reliance Securities and HDFC AMC— have not put up their disclosure document online This means, to make an informed decision, investors will have to approach each PMS entity and specifically ask for the disclosure document, which can be very frustrating and time consuming, and even fruitless. On the other hand, mutual funds are mandated to upload not only NAV data on their websites but even annual reports as well as valuation policy for greater transparency.
The SEBI circular IMD/DF/16/2010, dated 2 November 2010, clearly says, “To ensure compliance with Regulation 14(2)(b)(iv) of SEBI (Portfolio Managers) Regulations, 1993, portfolio managers shall disclose the performance of portfolios grouped by investment category for the past three years as per the enclosed prescribed tabular format. Portfolio Managers shall also ensure that the disclosure document is given to all clients along with the account opening form at least two days in advance of signing the agreement. In order to ensure that the clients have access to updated information about the portfolio manager, portfolio managers shall place the latest disclosure document on their website, wherever possible” (emphasis ours).
Why is SEBI not acting against those who have not uploaded their disclosure document, or those who have made it difficult for investors to locate it? Moneylife has not only been researching the PMS performance but also goading SEBI to reveal PMS information on its website. We have succeeded only partly. The data is not comparable and the site is extremely slow, even though the regulator has spent crores of rupees on top tech companies to get its site done.
Moneylife filtered only those PMS companies who have more than average of Rs10 crore of discretionary assets under management (AUM), over the last five months (since the SEBI website does not provide for information prior to January 2013), and found that only 46 companies fit the bill. We decided to look up the websites of all these 46 companies and here is what we came up with.
SEBI has consistently fallen woefully short of ensuring compliance. Many PMS companies have not even complied with the circular, even in spirit. Ironically, in the same circular, SEBI stated that it “has come across lack of uniformity in practice relating to following issues pertaining to portfolio managers” and also “many portfolio managers are not making adequate disclosure regarding portfolio performance in the disclosure document.” But, after November 2010 SEBI has been very casual and has done little to ensure PMS companies comply with the circular. Regulation 14(2)(b)(iv) of SEBI (Portfolio Managers) Regulations, 1993, Portfolio Managers states the following:
“The Disclosure Document, shall inter alia contain the following─
(i) the quantum and manner of payment of fees payable by the client for each activity for which service is rendered by the portfolio manager directly or indirectly (where such service is out sourced);
(ii) Portfolio risks;
(iii) Complete disclosures in respect of transactions with related parties as per the accounting standards specified by the Institute of Chartered Accountants of India in this regard;
(iv) the performance of the portfolio manager: Provided that the performance of a discretionary portfolio manager shall be calculated using weighted average method taking each individual category of investments for the immediately preceding three years and in such cases performance indicators shall also be disclosed;
(v) The audited financial statements of the portfolio manager for the immediately preceding three years.
Moneylife has been pushing SEBI to disclose the PMS data in public interest through emails, RTI applications and appeals. But it has been frustrating to get the regulator, acting too mulish, to act in the interests of the public.
Reported by: Aditya Govindaraj, Khalid Memon and Vishrut Patel
Read out earlier articles as part of our campaign to ensure meaningful disclosure of PMS data: