Largest shareholder T Rowe Price seeks govt role in UTI MF board issues

The tussle between principal shareholders of UTI Mutual Fund (MF) has escalated, with the largest shareholder, T Rowe Price Group, raising concerns over the functioning of the board. 

According to sources, T Rowe Price has shot a strongly worded letter to the finance ministry and the Securities and Exchange Board of India (Sebi), alleging the board is deliberately trying to delay the initial public offering (IPO) of UTI MF. The US-based fund house has sought government intervention and immediate action.

In the letter, T Rowe Price has also said the tenure of Managing Director and Chief Executive Officer (MD & CEO) Leo Puri should be extended. 

The asset manager is of the view that the continuity in leadership at UTI Asset Management Company (AMC) is necessary to protect the IPO plans. Puri’s five-year tenure ends in August.

Confirming the development, a T Rowe Price spokesperson told Business Standard: “We are disappointed that the board is not taking action to ensure continuity of leadership at UTI and that the Indian shareholders are not taking steps to comply with Sebi’s 10 per cent rule.” 

The US-based asset manager, which holds a 26 per cent stake in UTI MF, has reiterated the issue of conflict of interest at the country’s sixth-largest fund house.

Further, it wants Sebi to look at the independent directors appointed by the domestic stakeholders. T Rowe Price also said that having strong governance and management in place was essential to protecting the interests of UTI AMC and its stakeholders, including the millions of fund unit-holders. “It will also put the company in the best position to move forward with the planned IPO. Leo Puri has done a stellar job managing UTI since being appointed as MD in 2013 and we are very supportive of having him continue in this role,” said the spokesperson.

UTI MF has four domestic sponsors, which include Life Insurance Corporation (LIC), State Bank of India (SBI), Bank of Baroda (BoB), and Punjab National Bank (PNB), with each holding a 18.24 per cent stake. Each of the four sponsors operates separate AMCs, which is not allowed under Sebi rules.

Sources say that the board of UTI is divided on the issue of providing an extension to the current management. 

“It is learnt that a section of sponsors is unhappy with the current management since UTI MF has not gained any market share in the last three years, even as inflows into overall MFs touched lifetime highs,” said a person in know. 

Besides, the sponsors are also concerned about the brewing discontent among UTI MF’s employees against the current human resource policies, he added. 

UTI AMC market share stood at 6.7 per cent for the March 2018 quarter, down from 8.2 per cent four years ago.

LIC, too, has recently written to the government, proposing a plan to buy out stakes of the other three domestic shareholders and subsequently merging UTI MF with its own MF arm. Sources say that the other three sponsors are open to LIC’s proposal to resolve the long-pending conflict of interest issue.

An email sent to LIC, SBI, BoB and UTI MF remained unanswered. PNB said it did not have information on this.  

A board member of UTI, requesting anonymity, said public listing is not the only solution to resolve the existing conflict of interest issue. “It can be resolved with share sale, which is subject to government approval. All the sponsors of UTI MF have been requesting the government to lift curbs on selling and buying of stakes in the fund house. Currently, any stake sale requires an approval from the government, which has made the process onerous,” explained the board member.

When UTI MF was set up, the four stakeholders were the temporary custodians. It was envisaged that over time these shareholders would exit through the IPO route. Considering such potential conflict of interest, market regulator Sebi has recently placed a 10 per cent cross-shareholding cap in MFs. 

Under the proposal, any shareholder owning at least 10 per cent stake in an AMC will not be allowed to have 10 per cent or more shareholding in another mutual fund house operating in the country. In addition, such entities will be debarred from having a representation on the board of another mutual fund house. The new norms are aimed at avoiding any conflict of interest and help in strengthening the governance structure for MFs.