|Fund name||Asset Class||License|
|VEC Alternatives Investment Fund||Hedge fund||SEBI AIF Cat 3|
About the AMC
- Founded on 19th April, 2013
- Fund Manager- Arun Mehra (MBA from the University of Chicago, and M.Sc. from the University of Arizona and Bachelors of Engineering from the University of Delhi.)
- He was involved in setting up all of Fidelity International’s India Investment Operation from 2003 -2006 including setting up the India based equity research group, the investment process for top 500 stocks, launching the International and Domestic India Funds and managed $4bn in Indian equities.
- He also managed an institutional account for Norges and smaller India funds from Korea and Australia.
- Prior to becoming a Portfolio Manager, Mr. Arun Mehra worked across global offices and was a Sector Leader from 2002 to 2003 and managed a European Telecom and Utilities fund as well as being a Research Analyst at Fidelity’s London office between 2000 and 2002 and an Investment Analyst at the Hong Kong office between 1997 and 2000.
- Arun will be supported by Rajendra Khatu, Chief Operating Officer, V.E.C. Advisors Private Limited who worked along with him at Fidelity Fund Management, India, as Director Finance.
- SR Equity Research Analyst- Rahul Agarwal (CA)
- As part of the investment team, he is responsible for identifying stocks listed in India for long-only portfolio investments. Investment bias to mid and small cap stocks (Market cap up to US$300m).
• Portfolio targets return over 3-5 years under the AIF structure. Over eight years, evolved as a generalist. Sectors covered: Automotive and ancillaries, consumer discretionary (retail, durables, electricals, food and beverage, building materials, cement, media and entertainment, gaming), industrials (capital goods, engineering), internet, healthcare services (hospitals and diagnostics), IT design services, utilities (gas, power) and transportation (logistics, aviation).
Investment Philosophy (for firm)
The investment strategy of the fund is based on our global investment philosophy of bottom-up stock picking. It aims at spreading your investment across a broad range of successful businesses and will contain a portfolio of more stocks than you would typically find in a mutual fund – as many as 75 stocks.
While the fund has no restrictions on individual holdings, in very few cases I would look at holding more than 4 per cent in one stock. Since ours is not a high-risk-high-return fund, we would like to have solid diversification across a broad range of established companies, as well as smaller organizations poised for growth.
My investing strategy has no market cap bias, no trend bias, and no recent performance bias – just a conviction that each stock chosen has the potential to grow in value. I focus on buying companies with strong franchises. Having said that, we do not like or dislike any business. We would buy anything if the price is right.
While many diversified equity funds in India might have between 40 to 50 stocks in their portfolio, we do not get constrained by artificial caps on the number of opportunities we can incorporate into the portfolio.
There are better investment ideas in the Indian market than meets the eye, and Fidelity has the expertise, infrastructure and research capability to uncover those ideas.
Also, the number of stocks owned is not as important as how diversified those companies are; if you look at the sector composition of the portfolio, you will see that we have invested across a wide range of different industries to bring about true diversification for the portfolio.
15 questions with Arun Mehra, business-standard, February 6, 2013
- How big is your investment team in India?
I am supported by a team of five analysts in Mumbai, 16 analysts in Hong Kong who research companies in the Asia-Pacific region including India, and 11 sector specialists based out of our offices in Gurgaon. We are growing the team further and are looking at hiring more analysts.
- On how many stocks does Fidelity directly have coverage?
We conduct our own research on every stock that is included in the portfolio. The final decision on a stock is always based on our own judgment and analysis.
- How many company managements have you met personally?
We do not buy a stock without having met with the company.
- How closely does the fund intend to track the benchmark in terms of returns?
The fund’s aim is to outperform the benchmark, rather than track it, which is the province of index, or passive, investing. An active fund manager will always look to generate returns that are greater than the benchmark index, and by extension, the broader market.
There could be periods of underperformance. But we seek to create long-term wealth for investors.
- What about stock selection?
Our differentiation lies in the stock selection. Our stock selection is very different from that of the index. Whether a stock happens to be in the index does not matter to us. We look for stock that has good growth potential.
- Is there a quantitative model that you rely on to build your portfolio?
Our methodology is based on extensive qualitative research. We aim to buy companies which have substantial competitive advantage and businesses which can grow over, say, the next five years.
Then we try and assess the management capability, how hungry are they for growth, whether they have a vision and their level of transparency and disclosure. We use quantitative models only for the purposes of analyzing balance-sheets, cash flows and income statements, and running sensitivity analyses. We do not do any macro forecasts.
- With such a huge exposure to mid-cap stocks, don’t you think you run a huge liquidity risk?
The fund’s exposure to mid-cap stocks is only around 10 per cent. (Fidelity defines mid-caps as stocks with less than Rs 2000 crore in market-cap). I believe that these are businesses with strong long term growth potential which will deliver alpha (outperformance) over the longer term.
- Does the growing size pose a threat to performance of the fund?
We are comfortable even if the fund grows larger than it is now. Globally, Fidelity manages funds that are several times larger – our Luxembourg based India Focus Fund, for example, have a corpus of over $3.0 billion dollars.
Basically, we are not strangers to size – as long as investment opportunities are plentiful, there will be room for the fund to grow. We are able to do so because our team in India enjoys the same infrastructure that our investment professionals have across the globe, and they have been managing large funds for a long time.
- While you are saying that your philosophy is bottom-up, one gets a feeling that you actually following a portfolio approach across sectors. For instance, in banking you have invested in ten stocks, in effect, not taking a call on which of these will actually beat the crowd.
We pick stocks based on their individual merit. But then the crucial difference among the various stocks in our portfolio lies in the weightages we assign to them.
The weightages in some sense reflects our level of conviction in a stock. The weightages also represent the implied valuation or the risk to reward potential in various stocks. So we build bigger positions as our conviction level goes up rather than committing too much money upfront.
- In the oil space too you are betting on upstream and downstream which usually move in opposite directions…
Again, each stock is there because we see value in the stock. We are not taking a call on crude prices to decide on which stocks to own in that space. We are looking at implied valuation and the risk to reward for different stocks.
Some are their because they offer high dividends yield, some other because of their high enterprises value or good long-term business prospects.
- How do you approach new businesses?
Here, our global linkages actually help. Most new business here is actually established businesses outside and we have good insights and experience from other markets.
For instance, retail or aviation is established businesses elsewhere while these are a recent phenomenon in the Indian market. All we need to know is how this translates into India.
- How often do you trade?
We do not trade at all. We buy stocks based on their long-term potential and sell when the prices have run up enough to factor in that potential.
- Which sectors are you bullish on right now?
There are many sectors across the economy which looks promising. Banking, for example, continues to attract a lot of attention because its growth is a natural offshoot of, and indeed is central to, the expanding Indian economy.
However, we don’t focus on sectors per se; our approach has always been bottom – up stock picking, which entails choosing stocks based on their own merits, not on what sectors they happen to be in.
It is important, when employing this method of investing, not to be blind-sided by the lure of the ‘hot favorite’ sector – look at what happened to people who over-invested in the technology sector in 1999/2000, for example.
Instead, if a business is fundamentally sound, has good growth prospects or is undervalued compared to what it should be, then we will want to own it regardless of which sector it belongs to.
V.E.C. India Fund launched on Alpha Metrix Global Marketplace, reuters, December 1, 2011
V.E.C. India Special Situations Fund has been launched on Chicago-based Alpha Metrix Global Marketplace and will be managed by a former Fidelity portfolio manager, He is based in London, the company has said in a statement. Mehra will be supported by Rajendra Khatu, chief operating officer at V.E.C. Advisors Pvt Ltd, who will run the India office. It will also provide on-the-ground analytical and research support to the fund, the statement added. He had previously managed one of the four largest India-dedicated equity funds which, at its peak, had more than $4 billion asset under management.
Taming the vulture (funds), Fortune India, Nov 5, 2012
Overall, few firms had emerged in the industry out of which one was VEC Investments. Discussing it further, apart from Aion, there’s Arun Mehra’s VEC Investment, which will focus on companies with a substantial portion of their businesses in India and going through the process of restructuring or are in financial distress. Mehra, who managed Fidelity’s India funds, some $4 billion at their peak, floated VEC Investment last December.
ACTUALITÉS DES SOCIÉTÉS , lesechos-comfi.lesechos.fr, 29/11/2011
About launch of the VEC Investments
Interview on Indian Market, Bloomberg, 04/06/2010
Couldn’t connect to it.
Perception vs. Reality – Investing in India, company website, 19 May, 2010
Let’s us start with facts. India as a market open for foreign investors has a history of about 16-17 years when the then current Prime Minister initiated the reform process in the capacity of the Finance Minister. If you look at returns say since 94 the market has returned approximately 13% till end Dec 09, 22.6% over the last 10 years and 29% over last 5 years. These are good numbers and certainly make for a long term investment case. During these years, the country, the economy, the market and the very nature of life in India has undergone a drastic change towards consumerism and materialism but let us first understand why the last 5 years have been so good.
Clearly, the first few years of the economy opening up were very uncertain in terms of the reform process, government policy as well as the health of the macro indicators. It was like a gold rush for the starved corporate sector with no licenses required for producing basic things like steel, cement and saw huge capacity creation. This then led to a huge over supply across industries and with lack of regulatory clarity for infrastructure development saw the market stay in a narrow range for several years. The so called Information Technology revolution had not blossomed as yet.
- What according to you will take to improvise the upcoming future the conditions of Indian markets turn up and more opportunities can investors benefit out of it?
Prepared by – Taniya Nagpal
Peer reviewed by – Ridhima Jaisinghani
Date – 12th May