Sebi asks PMS managers for client deal data

The communique from the capital market regulator, which came a week ago, has sparked speculation among some of the portfolio managers about Sebi taking a closer look at the investment patterns through the PMS route. More so, with many high net worth individuals preferring to park a slice of their money under PMS and with alternative investment funds (AIFs) like private equity and venture capital outfits.

A portfolio manager does not accept anything below ₹50 lakh (or, securities worth that amount) from a client. The cut-off investment was raised from ₹25 lakh last year.

“We don’t know why the regulator has asked for the data. Even inflow of funds in every account since a client was onboarded were sought. Perhaps, Sebi may examine whether to raise the minimum investment amount or raise reporting standards,” a senior official of a PMS firm told ET. Sebi officials did not comment on the subject.

Attracted by higher commissions (compared to what mutual funds pay), many distributors of financial products have been hard-selling PMS products. “There has been a rise in the number of boutique PMS outfits, the PMS pie has grown, and the market has become volatile. Compared to mutual funds with so much retail money and the AIF industry, the PMS industry has light-touch regulations – even though disclosure and some of the rules were tightened a year ago. It’s possible that Sebi would like to know whether there were large exposures to some stocks,” said a senior official of a large mutual fund.

“Though with total assets under management at a few lakh crores (after excluding PF and EPFO money), PMS is a fraction of the mutual fund industry. Still, the regulator would not want risks to arise from unknown sources,” said the person.

Though the PMS companies were asked to share the names of clients, they had to share fund inflows from various categories – corporates, non-corporates, non-residents, offshore funds, and provident funds.

Further, they had to spell out exposures to various baskets of investments: listed stocks, along with a break-up of investments in large-cap shares, mid-cap and small-cap shares; listed debt securities and the quantum of holdings in papers with a credit rating of below triple-B; unlisted equity and debt; stock and commodity derivatives and mutual funds. Unlisted securities can also include units of AIFs, real estate investment trusts, infrastructure investment trusts, and warrants.

“Many HNIs choose PMS as the portfolio can be customised. For instance, a CEO of a software company who may be sitting on ESOPs would like to lower the exposure of the portfolio to the IT sector. Also, with direct access to the manager, the client servicing experience is different. Since clients come to know of the investments, they mirror the transaction to separately invest directly in the market to save on the fee to the portfolio manager. This is something many managers have to deal with,” said another official of a PMS house.

Besides a fixed fee of 1.5-2 per cent from clients, most PMS companies charge a ‘carry’ of 20 per cent which is the share of the gain if the portfolio outperforms a benchmark index.