As of July 2021, SEBI (Securities and Exchange Board of India) is demanding approximately 20% of the significant compensation of employees of joint funds to be part of the scheme they manage. While this decision received positive feedback from the investment community, not all fund managers and AMCs were happy with the change.
One of the key questions they ask is “will you ask your doctor to take your prescribed medication? does it mean to have more skin in the game?
In his 2018 book Skin in the game: Hidden asymmetries in everyday life, Nicholas Taleb called the law “the ultimate BS-buster”. Simply put, when the poles go up by a person at work, they improve their performance in order to improve. Lack of skin in the game relieves any responsibility and ownership of the wrong event, which means that their mistakes will have a negative impact on all other people except them.
In the wake of the Franklin Templeton mutual fund fiasco, in which the top executives of the fund reportedly withdrew their investment in the six funds that had been strained just before they closed, the goal has been set. But is that enough?
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Random and complex
Jimmy Patel, MD, and CEO, Quantum AMC, seem to be thinking differently. “The SEBI circle is not oppressive and irrational and seems to have been written very quickly. The circular applies to junior staff and other non-affiliated members and fund managers. Also, not all AMCs pay high costs to their key employees and everyone who falls under the definition of key employees receives a higher salary. In fact, it will be difficult for a small fund house to retain talent. In these difficult times, it will be difficult to keep up with the new framework. Staff cash flow will also be disrupted. While this may favor index funds and ETFs, this does indicate the potential death of effective fund management. ”
But what would be wrong with asking managers to increase their stakes on their finances, which directly reflects their skills and performance?
Viewed from an investor’s perspective, it lowers self-confidence. Having a manager on the same boat as they are, in terms of the return made by the mutual fund scheme can strengthen many. And many jobs around the world are encouraged by the work of an employee, so why should this be different?
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This is where the details come into play. The new rules mandate that key employees associated with the fund have at least 20% of their compensation retained as units of the scheme, for at least three years’ imprisonment. And in the event of fraud, this money will be refunded.
This is where the details come into play. The new rules mandate that key employees associated with the fund have at least 20% of their compensation retained as units of the scheme, for at least three years’ imprisonment. And in the event of fraud, this money will be refunded.
How appropriate is it to link employees such as the CIO (Chief Information Officer) with the fund’s operations? ”Asks Anil Upadhaya, a SEBI-registered employee with consulting skills at various business schools. Given that middle and lower managers are not paid much, it makes no sense to link their salaries in this way.
middle and lower paid executives, it makes no sense to link their salaries in this way.
This will not miraculously improve the performance of a fund manager overnight, he adds. It’s like this – you trust the architect to build your house, but believe that he will not deliver the best work until they do not physically live on the roof they are building. Will the artists suddenly start to do better when they see that they have a big part of the person here? It can also be discouraging as it raises specific questions about the integrity of the other person.
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Figurative rather than realistic Travel has a symbolic scale because it will be sometime before we see the impact on the investor’s portfolio, if any, assuming Viral Bhatt, founder, MoneyMantra, a financial advisor based in Mumbai. While this move is positive and well-intentioned, it is difficult to say that it will have a significant impact on fund recovery and as a result, in what investors find. Many experts, too, agree that the notice needs to be properly adjusted before the actual implementation of the balance sheet helps investors and AMCs.
