Danesh Mistry, head of PMS at Tata Asset Management, said portfolio managers are faced with two issues. The minimum investment size has doubled, making it difficult to attract customers used to a lower thresh hold, and, fixed cost has risen because of compliance requirements mandated by Sebi, including a higher number of officials on payroll. “They may need to consolidate just to cover the fixed cost,” Mistry said.
Meanwhile, there are also those who are looking to take advantage of the churn. Chhavi Moodgal, chief strategy officer at InCred Group, said the financial services firm is looking to capitalise on the opportunities thrown up the by possibility of consolidation. "We are very aggressively looking for existing businesses as well as hiring fund managers," she said.
She believes consolidation is more likely for those with an asset size of under Rs 200 crore currently. On average, break even is likely to shift higher with operational leverage and economies of scale only kicking in at upward of Rs 500 crore. People are also looking to offer expertise in more than one asset, rather than having only equity or debt segments exclusively.
"Regulations are forcing people to innovate, change to client centric models and consolidate," she said.
PMS refer to specialised investment services for rich investors. It is generally associated with more risk and higher returns. The new rules have raised compliance standards for such funds.
“A Portfolio Manager…(shall)…mandatorily employ minimum one person with defined eligibility criteria in addition to Principal Officer and Compliance Officer…appointment of custodian (is) mandatory for all the Portfolio Managers except for those providing only advisory services to clients,” Sebi said following a board meeting in November.
There are 353 registered players in the PMS space, and 46 in the mutual funds sector. However, investor accounts for mutual funds number around 86.5 million with Rs 27 trillion in assets.
The number of accounts in the PMS segment is 161,465, according to Sebi. However, assets managed by PMS industry is worth around Rs 16 trillion, though three-fourths of the assets under management (AUM) belong to the Employees’ Provident Fund Organisation.