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UNTIL recently, Indian mutual fund managers worked in relative obscurity. When a fund notched up a trail-blazing performance, it was the fund house and not an individual fund manager, who bagged all the bouquets. Only a few fund houses — the (former) Pioneer ITI group and Alliance Capital India — publicly identified their fund managers.

But of late, more fund houses (the Unit Trust of India and Sundaram Mutual Fund, to name two) have begun to disclose the identity of the individuals who run each of their funds.

This trend is welcome because it helps investors fix responsibility for performance. In a business where investors bear all the consequences of errors of judgement, negligence or even sheer mismanagement, identifying the fund manager may ensure some kind of accountability. The public recognition that comes from being identified with a fund may make fund managers strive harder to outdo the markets and their peers.

But at the same time, experience suggests that fund houses should avoid the temptation to overdo the publicity part and elevate the fund manager to "star" status. In the developed markets, quite a few fund houses have regularly marketed their products on the strength of "star" fund managers. Though this approach helps to pull in funds, it can expose the fund house to quite a few pitfalls.

When a large section of investors pick a fund solely on the strength of its manager, the fund may have to cope with large-scale pull-outs, if the manager leaves. And when a fund's performance is perceived to be the result of an individual's skills, any slip-up by him/her can severely damage the credibility of the fund house itself.

In the end, fund houses should probably adopt a middle path on this issue. It may be desirable to publicly identify a separate fund manager for each fund. But the fund manager's decisions should be tempered by the inputs from a team of professionals, and should conform to standard criteria on risk management and stock selection.

This will make for some stability and continuity in fund management, even if a couple of individuals leave in search of greener pastures.

Aarati Krishnan

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