Quantum Asset Management

About

  • Quantum Advisors is the Sponsor and parent company of Quantum Asset Management Company and the Quantum Mutual Fund.
  • Quantum Advisors Private Limited, was founded by Ajit Dayal in 1990.
  • In December 2005, Quantum Asset Management Company Private Limited received the AMC licenses from SEBI.Quantum Mutual Fund was launched in 2006.
  • Quantum Advisors is 50.8% owned by Mr. Dayal and the Management Team and 49.2% owned by HWIC Asia. HWIC Asia is ultimately promoted and wholly owned by Fairfax Financial Holdings Limited (“FFHL”). FFHL is a financial services holding company which, through its subsidiaries, is engaged in property & casualty insurance and reinsurance and investment management activities.
  • As of 31 March 2019, Quantum currently offers 16 schemes and has an asset under management (AuM) of Rs. 1,423 Crore.

Key staff

  • Jimmy Patel – Managing Director & CEO; Jimmy A Patel joined Quantum Asset Management Company Private Limited as the Chief Executive Officer in May, 2010 and was appointed as the Managing Director on the Board on August 23, 2017. Patel has over 23years of rich & valued experience in the mutual fund industry with more than 2 decades of experience in the Financial Services Industry. Prior to Joining Quantum, he was associated with Edelweiss Asset Management Limited as Chief Executive Officer. His earlier experience includes assignments with J M Financial Asset Management Private Limited, First source Limited, IDBI – Principal Asset Management Co. Ltd., Sun F&C Asset Management (I) Private Limited and Tata Asset Management Limited. Patel is a Chevening Standard Chartered Financial Services Leadership Fellow having completed the Chevening Standard Chartered Financial Services Leadership Programme at Kings College, London. He was a director on Association of Mutual Funds in India (AMFI) Board and also has been a member of various AMFI and SEBI Committees.
  • I.V.Subramaniam Managing Director, CEO and CIO; I. V. Subramaniam has over 27 years of experience in the investment management and financial services industry. He is presently the CEO, CIO and MD of Quantum Advisors Private Limited. He Joined Quantum in June 1996 as a Research Analyst and was appointed as a Director in 1998. Since June 2000, Mr. Subramaniam has managed India-dedicated Portfolios for India-based clients and since 2005, he has been managing India dedicated portfolios for international clients. During 1998-2004, under advisory services provided by Quantum Advisors to Hansberger Global Investors, Inc, USA, his responsibilities included research coverage on Indian companies, electric utilities in emerging countries, and building materials companies globally. He has travelled extensively to meet many of these companies in emerging markets and in the developed world. Prior to joining Quantum, he was a Research Analyst with Securities Capital (I) Ltd (1995-1996). Mr. Subramaniam began his career in the Indian financial services industry in 1991, working with Karvy Consultants, a share registrar and retail distribution company, where he focused on new IPO listings and back office functions.
  • Ajit Dayal Founder – Quantum Advisors Pvt. Ltd; Ajit Dayal has more than 3 decades of experience in the Indian capital market and 8 years of experience in the international stock market as an analyst and a portfolio manager. He has a Bachelor of Arts degree in Economics, Mumbai University and an MBA from The University of North Carolina. Ajit is the founder member of Quantum, which was established in 1990.

Investment Philosophy (for firm)

  • They  view equity investing as purchasing stakes in businesses, rather than merely investing in pieces of paper.
  • However much they like a company, they avoid overpaying.
  • Prefer purchasing cash generating, low debt businesses
  • Like to partner with Managements who take care of the interests of minority-shareholders.
  • Stay away from periodic fads and fancies in the stock market, whether they be businesses, sectors or themes.

The Quantum vision is to stay focused on the needs of our investors and be India’s most respected mutual fund house by adhering to traditional values of simplicity, transparency and integrity while continuing to deliver steady performance over the long term… the keyword to takeaway from this statement is the word respected. Not the largest in terms of AuM but the most respected, by doing what’s right for the investor and not deviating from our core investment philosophy.

Quantum Mutual Fund has always firmly adhered to its values and will continue to stay true to our philosophy on equity investments. The key word here though is Value. Value not only in terms of the softer aspects of the organization but also in terms of how we invest. That is by following the tenets of Value Investing as a concept for the Quantum Long Term Equity Value Fund since its inception in 2006. Value Investing is defined as “An investment strategy where stocks are selected that trade for less than their intrinsic values. Value investors actively seek stocks they believe the market has undervalued. Investors who use this strategy believe the market overreacts to good and bad news, resulting in stock price movements that do not correspond with a company’s long-term fundamentals, giving an opportunity to profit when the price is deflated.”

“No Shooting From The Hip”

Our tried and tested Research and Investment process gives clients with a long-term investment philosophy a channel that outperforms on the Upside and limits the Downside.

Investment Process – 

  1. Our Investment Criteria – Value – We first understand the business of the company and the environment in which it operates. We then evaluate the management of the company and their long-term goals.
  1. Analyze – The stock price of the company based on fundamentals relative to its sector, its historical performance, and overall market trends.
  1. Buying Criteria – For a company’s stock entering the portfolio for the first time, the current price should be 40% or less than our estimate of long-term value
  1. Selling Criteria – The company’s stock exits the portfolio (completely or partially) if the current market price is greater than our estimate of long-term value. We could also reduce exposure to a stock in case there is a change in the view of management or the business.

Media

Topic/Title: Quantum Mutual Fund: Hum woh nahi hain, Media platform name: The Honest Truth by Ajit Dayal, 29th April 2020

https://www.equitymaster.com/ht/detail.asp?date=04/29/2020&story=5&title=Quantum-Mutual-Fund-Hum-woh-nahi-hain&utm_source=archive-page&utm_medium=website&utm_campaign=the-honest-truth&utm_content=story

The AMFI ad campaign is spot on: Mutual fund sahi hai.

the way mutual funds in India are launched, marketed and (mis)sold has always led to a crisis for investors. Individuals flock to the mutual fund houses with a bagful of savings and a mountain of trust. What they are left with is a deep distrust and helpless anger. Yeh sahi hai.

It is not that the professionals working in the mutual fund industry are dumb. On the contrary, all the glorified tags that enhance their paycheck – MBA, CFA, CA – adorn their business cards. Without doubt those who work in the mutual fund industry are extremely smart and competent people. 

SEBI scrutinises those who apply to launch mutual funds primarily on two criteria and vets applicants to see if they are:

(1) fit and proper, and

(2) have the required capital to sustain the operational running of a mutual fund.

But there is one thing that SEBI cannot regulate: “character”. The late John Bogle, the founder of Vanguard, wrote a book called “Character Counts” which was essentially a collection of his speeches and talks to his colleagues at Vanguard over the decades.

Many investors read the Annual Reports and letters penned by legendary investors Warren Buffet and Charlie Munger – but very few even know about the existence of “Character Counts”. That is a pity.

We pose the question: Quantum Mutual Fund house has a “local” track record of 14 years and the parent Sponsor has a track record of 20 years, why is it that we have assets of less than Rs 1,000 crore when the larger fund houses have assets of Rs. 3,00,000 crore? Why are the larger fund houses 300x larger than us?

Is it because of a first mover advantage that the other fund houses had?

Quantum was, admittedly, the 29th Fund house to get an AMC license from SEBI so there were 28 others who were early and had time to establish their roots.

Is it because we are not good at our work and are incompetent?

Quantum’s long term record (and investing in mutual funds is a long-term story) is very respectable.

Integrity – or lack of it?

Well, the answer is that we refused to adopt opaque and unethical business practices.

When we launched our first mutual fund product in February 2006 we were the ONLY fund house that refused to pay commissions to banks and distributors to help us raise AuM for the funds.

Let me be clear on this: We have nothing against anyone making money from a business or profession and encourage private enterprise. However, the problem for us was that the amount of commission that the mutual fund house was willing to pay large banks like HDFC Bank and ICICI and multiple distributors was not disclosed to investors.This meant that when your

relationship manager suggested a mutual fund for your portfolio, you as an investor had no idea whether the mutual fund was being suggested to you because it was, indeed, good for your portfolio – or whether a particular mutual fund was paying a high distribution commission! In many countries such practices are illegal but, in India, it was the norm.In addition to this, the mutual funds played another dirty game. The commission that they paid on older funds was lower than the commission they paid on new funds. So, guess what they did?The mutual fund CEOs took the old funds, placed a new cover on it, gave it a new name – and then teamed up with their distribution partners to launch a “new” fund. The mutual fund houses became a recycling factory – but one with polluted ethics. The distributor made you exit from a fund (they collected a part of the exit fee you paid!) and then got you into the “new fund” and collected money from you (not that you knew it!) in the form of a higher commission. It was a mechanism to deplete your wealth.

When SEBI finally acted and shut down this (mal?)practice, the mutual fund industry protested and used all their lobbying power in New Delhi to fight the proposed changes by SEBI. But SEBI stayed firm and protected investors.

Many of the peers in the hybrid category, which include multi asset and balanced funds, built their portfolios as if they were equity funds. The tax advantage of being labelled an equity fund and having more than 65% of the Fund’s investments in equity at every point in time made it an easy sell. But the underlying risk of a high equity exposure removed the buffers available to investors in a market downturn: and we have had 17 such COVID-like downturns over the past 26 years. 

The investors thought they were buying a “diversified” fund with exposure to gold, debt, and equity. A typical investor does not – and is not expected to – look deep into the reasons for the returns that a fund generates. When groups who plaster planet earth with their brand names tell you something, many tend to believe them. Woh to sahi hi hoga.

We have never been willing to be part of the opaque, dishonest and highly questionable pact that existed for decades between the mutual fund houses and the banks where your money was sold to the highest bidder. That principled stand hurt us. This act of being the only fund house to challenge the system and fight for investors whose names, addresses, birth dates and joys in life we will never know – but know that we fought for a fair world for them – reduced the AuM we had in our funds. Money is transitory. When you are locked down in your home, the material does not matter beyond a point. Values do.

The failure of the mutual fund industry is its lack of character, its absence of a moral compass. SEBI granted the mutual fund industry a license to set up an “Asset Management Company”. The mutual fund industry shamelessly converted that to an Asset Gathering License.

As a founder of the Sponsor of Quantum AMC, the investment manager of Quantum Mutual Funds, I can say this: I may have left the Boards of the Quantum companies in 2017 but our Charter of Principles is ingrained in our daily interaction with our growing number of long-term investors.

It is this that distinguishes us from many of the others: hum woh nahi hai.

MMI Interview with Jimmy Patel

Quantum Mutual Fund was launched eight years ago with the aim of offering products directly to the investors overriding the distributor network. It has kept the number of products at just eight to avoid cluttering investors with too many products and also does not set alpha targets for its fund managers to cut excessive risk taking.

Business Plan

Quantum Mutual Fund feels its idea has succeeded — the idea of going slow, creating a decent portfolio, constantly communicating with the customer and creating a benchmark of track record. 

Jimmy Patel, chief executive officer, Quantum Mutual Fund, says, “We are profitable. We do not have a business plan in terms of AUM. Do we have a business plan in terms of the number of investors we will get? Probably, yes.”

Marketing Strategy

Patel says, “We tell investors, if you have INR 100, invest INR 90 with other fund houses and invest only INR 10 in our fund. If you are happy with our performance, if you think your and the AMC’s objectives meet, please increase your allocation over a period of time.”

Investing Style

The AMC has refrained from buying a stock even if it was the flavour of the market. “If we restrict ourselves to research and take lower risk to construct a portfolio, then we are typically well placed,” says Patel.

Quantum says upfront that it won’t churn portfolio and won’t take undue risk. Its churn rate is just 10-15%.

If at any point the fund house feels the market is not conducive for investing, it sits on cash. It currently has 17% of its AUM in cash.The fund house does not set alpha targets as it strongly believes it could lead to indulgence in a malpractice.

SWOT ANALYSIS 

Quantum lists its SWOT as:

Strengths: Close to the customer, transparent, relying on processes, over compliant.

Weaknesses: Small size, because investors are told size matters. Even the regulator says so.

Opportunities: Could have gone deeper into Tier II towns given internet penetration in these towns.

Threats: Weaknesses and Opportunities.

MMI Interview with Subramanium

“We do not believe markets are efficient and that there is a scope for active managers like us”. – pick and choose stocks – manage risk while choosing.

Never believed – in efficiency – hence – opportunity to generate alpha. 

“After our experience in the early nineties, we were very clear that we will only buy very liquid stocks”

First liquidity, then valuation. 

Eliminate based on management – esg factors – governance factors – avoided – no poor accounting 

“We have avoided stocks that are into smoking, and those kind of industries”

Competitive Advantage – 

Research 

Portfolio construction 

Implementation 

All three – Stick to process. 

“You have to stick to the process, you can’t tweak the process based on a bull market and bear market.”

We cover stocks –  hence when the market reacts we have the advantage to move quickly.

Quality of people – is a competitive advantage. 

Training – adapt to process – do not look at qualification.

Good analyst – inquisitive – understands the importance of process and team players. 

Topic: Mr. Jimmy Patel MD & CEO QAMC with BTVI on “Are Mutual Funds Good Investment Vehicles” Media: Quantum Mutual Fund Youtube Date: 22nd May 2019

Researching stocks:

After meeting the management of the company and doing the fundamental research, our team comes up with a buy and a sell price and if the particular scrip meets the buy criterion then we buy it. We have conviction in what we buy. We do continuous analysis on the scrip to make sure we are not off track.

Take on events:

We did an analysis on pre-election and post election since 1990 and we have come to a conclusion that yes there is a movement during election but most of it is sentimental and stabilizes later on. Election per se should not be looked at as something where you time the market to invest.

Advise on debt:

Lets not look at debt and equity separately. There is no guarantee in a mutual fund. In debt there are multiple risks like credit risk and interest rate risk. One should not be carried away by past performance, very fancy returns were offered previously but that might not happen in the future.

Interview with IIFL, 2014

https://www.indiainfoline.com/article/news-sector-others/jimmy-patel-ceo-quantum-asset-management-114020505406_1.html

“The investment philosophy of the fund house is simple. We look to build a portfolio of stocks with broad exposure to various sectors, reflecting three broad themes: domestic consumption, exports and infrastructure. Regular meetings are held to review ideas and approve value stocks for the database.”

Given the market conditions, would you suggest active or passive investments? “From an investor’s perspective – it depends on the track record of the fund. If the fund has been able to maneuver through volatile markets then the investor should trust the fund manager to do his job (relatively passive). If the investor is confident about his own ability of being able to time markets then he can decide himself (active). If the investor cannot do the latter then he can choose a passive option.

From our philosophy perspective, we always believe in passive investments through active portfolio management since we have a team based approach which we trust to pick the right instruments at the right time and at the right price. We also believe that if one sticks to the fundamentals of maintaining a proper balance between risk and return, an actively managed fund has a better chance of delivering better returns than a passively managed fund.”

The Quantum story – In the words of Ajit Dayal.

https://www.quantumamc.com/about-us/the-quantum-story-in-the-words-of-ajit-dayal/18

Analyst questions

  • Can you make us understand your portfolio construction process in detail?
  • Under what circumstances will your investment philosophy underperform?
  • How do you incorporate behavioral biases into your investment decision making process?
  • You have been into the industry for a long time, what are some of the mistakes you have made and what has been your learning from the same?

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