SEBI’s PMS circular asks for disclosure of PMS information on the companies’ website. Many companies like Alchemy Capital wrongly interpret this circular to limit to disclosure only to clients. Besides, what are they afraid of? And why is SEBI not clearer with its circular?
Moneylife’s crusade for greater transparency and disclosure of portfolio management services (PMS) has drawn a sharp reaction from Alchemy Capital Management
(Alchemy). In an earlier
story, we pointed out that Alchemy Capital Management was one of the companies which has not put up the disclosure document on its website, unlike many others which have indeed disclosed theirs. Our article was based on an interpretation of SEBI’s circular addressed to registered portfolio managers.
The SEBI circular IMD/DF/16/2010, dated 2 November 2010, states: “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.”
Alchemy has taken offence to the article based on the above circular and insists that it has complied with disclosure and transparency norms set down by SEBI. It wrote to us arguing that: “The circular expressly uses the words ‘the clients’ in the context of persons who should have access to the latest disclosure document. Clearly, so long as ‘clients’ (meaning those who have the relationship with the PMS company) can access the latest disclosure document, the PMS Company has met its obligations under this circular. On Alchemy’s website, its latest disclosure document is available to, and easily accessible by, all its clients and according Alchemy is in compliance with this requirement.”
There are two issues here. Firstly, many PMS companies, unlike Alchemy, have put up the disclosure document for the public to inspect even without asking for it. Among these are Quantum Advisors, ING Investment Management, SBI Funds Management, Tata Asset Management, and many others. They are part of the 20 companies out of the 46 companies we chose to analyse. Anyone can see these documents, not just clients. We wrote to the remaining 26 companies requesting their disclosure documents. Eight of them agreed to email them, including Parag Parikh Financial Advisory Services, Motilal Oswal Asset Management and Reliance Capital Asset Management. Alchemy is part of the 26 companies, whose disclosure documents are not in the public domain. Of these, 17 including Enam Asset Management, Morgan Stanley India Financial Services, have not bothered to reply to our mail request. Alchemy, Avendus PE Investment Advisors and HDFC Asset Management argued that it is available to clients only. Are they right?
This takes us to the second point, SEBI’s own interpretation of the PMS disclosure rule. The whole idea of disclosure document is for the public to make an informed decision, by comparing and contrasting portfolio management schemes before making a call. In fact, SEBI clearly had
advised investors to ask for the disclosure document from any PMS company before investing in PMS.
Ms Maninder Cheema, who until recently oversaw PMS at SEBI, confidently told us sometime ago that companies offering PMS are supposed to disclose their performance and other details on their website. Indeed, Mr Aman Jain, AGM, SEBI, confidently argued before Satyananda Mishra, Central Information Commissioner (CIC), during an RTI hearing, on 17 January 2013, that each PMS company publishes disclosure documents in their respective website while also reporting to SEBI, on a monthly basis, and the public could always visit the respective website and find out about the information required. This was a lie, as we subsequently discovered. By the way, we won this RTI appeal that forced SEBI to disclose PMS information on its website. (
Power of RTI: CIC directs SEBI to disclose all information related to PMS).
Clearly, Alchemy had conveniently twisted and interpreted SEBI’S circular for its own good. Also, SEBI (Portfolio Managers) Regulations, 1993, clearly states: “The portfolio manager shall provide to the
client, the Disclosure Document as specified in Schedule V, along with a certificate in Form C as specified in Schedule I, at least two days prior to entering into an agreement with the
client as referred to in sub-regulation”. (emphasis ours)
You can check the document for yourselves here on SEBI’s website. If we go by the above SEBI definition, does this mean an investor becomes a “client” BEFORE signing an agreement? Alchemy has found it convenient to use the textbook definition of client (i.e. once you’ve signed on the dotted line).
Alchemy’s interpretation of the circular is convenient and wrong. If not, SEBI would have argued at the CIC hearing that there is no need to disclose PMS information to the general public. That leaves us with just one question: And what does Alchemy have to hide?
Look out for the next issue of Moneylife magazine which carries the first-ever in-depth analysis of PMS.
Other Moneylife articles on portfolio management services can be accessed below
