Many PMS companies, including the big ones are not complying with SEBI’s directives on disclosure of performance data. As usual, investors bear the brunt of the poor disclosure in a disclosure-based regime

There are 253 portfolio management services (PMS) companies registered with the Securities and Exchange Board of India. According to circular issued by Securities and Exchange Board of India (SEBI) in 2010, they have to upload the disclosure document online.
 

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”
 

However, most PMS companies are flouting the regulation, as we found out in our continuing research on PMS performance and disclosure. Moreover, companies, which have uploaded the disclosure documents, have kept it well hidden on their website and only the most ardent techie could locate the file. We also found that some documents were not updated at all and many were outdated. When Moneylife asked these companies about their performance, many replied saying that they will disclose the information only to clients and not to the public.
 

We studied all the data available on SEBI’s website  and here are some of our key findings:

• • There are a total of 253 companies. Moneylife filtered only those PMS companies which have more than average of Rs10 crore of discretionary assets under management (AUM) and found that only 46 companies fit the bill.
   
• • We decided to look up the websites of all the selected 46 companies, out of which 26 companies’ disclosure documents are available on their website while the following list of 17 companies haven’t put up their disclosure document in public domain.

• • Companies are required to mandatorily disclose all statistical information in three categories—discretionary services, non-discretionary services and advisory services—followed by information on complaints received & resolved during the year. Most of the companies don’t provide any information except discretionary services.

• • Some of them provide access only to their existing clients. When we asked them for the disclosure document which should be accessible in public domain as per SEBI’s circular, some of big PMS Service providers like HDFC asset Management Company, Alchemy Capital Management Pvt Ltd and Avendus PE Investment Advisors Pvt Ltd refused to disclose it to us as a matter of confidentiality. While the SEBI circular emphasizes PMS companies to be more transparent for the benefit of the investors, the companies want to preserve their confidentiality!

• • Even if companies uploaded their disclosure documents on their website, most of them are not easily accessible in a user-friendly manner. For that one needs to be tech-savvy.

• • Some of these companies have old disclosure documents showing old financials. They haven’t submitted the most up to date disclosure documents to SEBI.

Portfolio management companies are offering many untested & complicated schemes with big amounts as their minimum capital required (minimum capital required is Rs25 lakh). Since it involves a lot of money, investors need to do lot of research prior to making a decision. They need access to historical performance, drawdown and volatility of returns, etc. Unless information pertaining to PMS is put up properly, investors will continue to find it difficult to decide which PMS to invest in and make an informed decision. This situation is of course tailor-made for distributors to mis-sell. The less there is comparative information, the easier it is to fool the investors with sales talk. However, most of these portfolio companies give you the disclosure document only AFTER you become a client and not BEFORE. We had given an example of Prime Securities, over here:
 

Moneylife has been crusading to bring transparency in PMS offered by various portfolio managers, brokers, financial institutions and AMCs. This started with Moneylife’s RTI request for PMS data disclosure, which was turned down by Sebi.
 

We then appealed against SEBI’s decision to with the Central Information Commissioner (CIC) which ruled that SEBI has to upload data of PMS schemes onto its website.
 

We recently filed a Right to Information (RTI) application requesting SEBI to disclose all the information that they had put up on their creepingly slow website on a CD. Shockingly, they refused to give the same, citing that such a thing would lead to “diversion of public resources”, which is actually Section 7(9) of the RTI Act, 2005. It is pertinent to note that an RTI can only be refused under Section 8(1) and 9 of the RTI Act, 2005. The exclusive story can be accessed here.
 

You may want to read our other stories on PMS…
 

SEBI’s system of reporting PMS data continues to be frustratingly anti-investor

Kotak PMS: Among the worst in the business?

Portfolio Management Schemes leave investors with a big hole in their pocket

Wake-up call for regulators.