Lotus’ cup of woe brims over

Temasek may reduce stake from 55% to 42%, AMC denies it.

Lotus Mutual Fund could be facing another hiccup — this time from one of its joint venture partners.

According to sources in the fund fraternity, Temasek, the investment arm of the Singapore government, wants to bring down its stake in the asset management company as it does not think its return on capital would be anything to write home about.

Temasek’s concerns with its asset management venture in India may not be fully misplaced. Since inception in July 2006, Lotus MF has been plagued with a number of issues, including redemptions from investors and exits at the top-level management.

However, the other partner in this venture, Sabre Capital, denies the development. Sabre Capital managing director Rajeev Maliwal says there is no change in anybody’s commitment to the venture. According to him, Sabre will continue to own 20% in Lotus MF, the employees’ trust 25%, and the remaining 55% will be held by Temasek subsidiary Fullerton Fund Management.   

But according to sources, at a Lotus MF board meeting on Friday, attended by Fullerton’s chief executive officer Gerard Lee, Temasek decided to bring its holding down from 55% to 42%. Sources also indicated that the changed shareholding would redraw the Pi charts - it would be 42% with Temasek, 42% with Sabre Capital and 16% with the employees’ trust.

“There was no discussion on this at the board meeting, but going forward, either of the partners can increase or decrease their stake,” said Maliwal.

According to him, the joint venture agreement talks about the possibility of a change in shareholding whenever more capital is infused into the asset management company.
“The Temasek stake cannot go below 40%, since its subsidiary Alexandra (an affiliate of Fullerton) is the sponsor of the fund. Law stipulates that the sponsor holds a minimum of 40%,” he said.

Redemptions could have been one reason for Temasek’s concerns. According to sources, the Lotus India Liquid Fund, which raised Rs 1,067 crore in its new fund offer that closed mid-November, has seen its assets erode to around Rs 400 crore. Maliwal did not have the updated figures to dispute this.

Besides, investor response to the Lotus India Tax Plan, which closed for subscription on December 11, 2006, was indifferent. It managed to garner a meagre Rs 35 crore in assets, according to distributor sources, which is poor by any standards.

Lotus MF’s brief stint in asset management has also been characterised by the exit of key personnel. First, Sandip Sabharwal, chief investment officer (equity), was asked by the Lotus management to resign, following alleged irregularities in dealing with certain stocks in his previous assignment at SBI MF. Nothing further has come out of the charges made against Sabharwal.

The way Sabharwal was unceremoniously thrown out of the company is said to have shaken the confidence of the Lotus managers.

The immediate fallout was the resignation of Nandkumar Surti, chief investment officer (debt). Sabharwal subsequently joined JM Financial, while Surti joined JP Morgan’s new asset management arm. Sabharwal also managed to take two of his associates at Lotus Mutual Fund - equity dealer Apoorva Vora and equity fund manager Asit Bhandarkar - to JM Financial, leaving incumbent CIO (equity) Tridib Pathak to fend for himself.

The next top exit will be Lotus MF’s head of sales and distribution, Bhanu Katoch, who is said to have already put in his papers. He is said to be joining JM Financial Mutual Fund.

“It is the price we have paid for doings things right and setting the right values,” is what Maliwal had to say about the exits.