History of a Fund manager : Mr.Prasanth Jain, HDFC AMC

Year 1994. The erstwhile Twentieth Century Asset Management has floated Centurion Quantum Growth Fund, an equity product, to ride on the stock market euphoria sparked by economic liberalisation. It hired a young fund management team comprising Prashant Jain, Chandresh Nigam and EA Sundaram. Centurion Quantum Growth mobilised Rs 80 crore in the new fund offer.

Buoyed by the warm response from investors, the trio went on a shopping spree - buying newly listed companies they thought were underpriced to core fundamentals. They invested in stocks such as Techran Polylenses, Jamna Auto Industries and Shree Krishna Polyester.

But, soon the calculations went awry as a reversal in the stock market sentiment resulted in several newly-listed companies in the fund's portfolio significantly underperforming the equity benchmarks. A few companies simply vanished from the marketscape. The net asset value (NAV) and asset base of Centurion Quantum Growth hit a downward spiral. And in just 15 months, assets under management of the fund fell to Rs 40 crore while the NAV crashed to Rs 4.20.

It was a lesson well-learnt for the inexperienced threesome, albeit the hard way. The bets that backfired laid the foundation for many of today's investment beliefs of Prashant Jain - one of India's best-known and well-tracked money managers.

In the months that followed, Jain and his friends had to re-balance Centurion Quantum by liquidating all junk and non-performing stocks. "We had to sell firms at significant losses... The experience taught us that one should only invest in sustainable businesses," says Jain, the chief investment officer of India's largest fund house HDFC Asset Management Company with assets under management of Rs 92,625 crore.

This investment philosophy has probably helped Jain generate consistent returns from most of the products he manages. HDFC Prudence Fund, HDFC Top 200 Fund and HDFC Equity - all yielding 18-22% returns since mid-90s - are standing testimonies to disciplined investing.

Even as most fund houses struggled to sell their equity products due to unfavourable markets, HDFC Mutual has steadily managed to increase its equity asset base over the past two years.

We're not Reckless with Our Investments:

HDFC Mutual's assets have grown from Rs 86,648 crore in June 2010 to Rs 92,624 crore last month. Top schemes such as HDFC Equity Fund, HDFC Top 200 Fund, HDFC Prudence Fund and HDFC Opportunities Fund attracted over 65% of equity fund inflows in 2011, according to estimates by top distributors.

Further, HDFC Top 200 Fund, the largest mutual fund scheme in India with assets over Rs 11,100 crore, has generated three-year returns of 8% as against category average returns of 6.2%.

"We were lucky in the sense that right in the early stages of our career, we made mistakes; and those mistakes were made with smaller sums of money. Since then, I would like to believe, we've not made other large mistakes," says Jain, a recluse in the roller-coaster universe of fund houses.

Centurion Quantum, a few years later, was rechristened HDFC Capital Builder after Twentieth Century Asset Management was acquired by Zurich Mutual Fund and subsequently merged with HDFC Mutual Fund. Today, the scheme has assets worth Rs 462 crore and an NAV of Rs 101. Against its initial price of Rs.10 NAV, the fund has grown at an compounded rate of 13.71% to Rs.101.


The NAV, which captures the price of a mutual fund unit, is the performance barometer that rules the life of a fund manager. Perhaps, to take the ups and downs in his stride, Jain is into meditation. Friends and sell-side analysts say the man is a stickler for research and backs his stocks to the hilt if he is convinced about a company's prospects.

Such conviction was demonstrated in 2011 when shares of power equipment maker Crompton Greaves were under pressure due to poor results and allegations of poor corporate governance.

Many investors and analysts cried foul over the company's decision to pay Rs 270 crore to buy an aircraft and Crompton's non-executive vice-chairman SM Trehan's move to sell his entire holding between June 29 and July 1 after he stepped down as the managing director on June 1.


Even as many investors were considering dumping their Crompton holdings, Jain was quietly accumulating the company's shares after they plunged almost 44% in a month from July 19. "We're not reckless with our investments... It's fair to say, we put reasonable amounts of capital behind our high convictions and ideas; but we're not reckless," says the soft-spoken fund manager.

Jain is the among the very few fund managers who have not been lured by market momentums that lead to bubbles. The most memorable one being the tech bubble in the late-1990s, when Jain stayed away from the raging rally in technology stocks that turbocharged assets and returns of many mutual fund schemes.

As a result, his schemes underperformed significantly, drawing sharp criticism from investors and distributors. But, when the bubble burst in early 2000, most fund managers had to take severe hits on their portfolios, while HDFC Mutual Fund schemes were largely unaffected. This was probably the turning point in Jain's career.

"Our funds underperformed 20-30% that year...we kept on going back to our numbers to reassure ourselves. Ultimately, when the fall came, what we lost in one year, we gained in two months. That is when we stood apart from the crowd," says Jain, sitting in his office at Ramon House in south Mumbai. The lessons of the tech bubble strengthened his resolve to stay away from similar bubbles in the real estate and infrastructure sectors in 2007-08 at the expense of HDFC Mutual Fund schemes lagging its peers.

"Spotting a bubble is not difficult. What is difficult is to bear the underperformance and the pain in the short to medium term. We did not invest in real estate in 2007 and that year turned out to be really bad for us; we underperformed by almost 7%," says Jain, a fitness freak who loves his game of badminton.

But the stock market, with its imponderables, often has a way of punishing cautious managers. The investment team Jain leads made a string of wrong calls in debts papers (in the fund's fixed maturity plans) in 2008-09, resulting in losses.

Also, his conservativeness cost Jain a few multi-baggers. Brokers said Jain could not get his timing right in companies such as Asian Paints, Crisil, Bajaj Auto and Jindal Steel & Power. He even mistimed his exit from consumer stocks last year. "There have been companies which we sold a bit too early thinking there were better opportunities elsewhere.

But I don't think we've missed any large sectors. About two years ago, we sold a few consumer stocks...these stocks performed much better than we had expected," admits Jain, who is bullish on domestic equities these days.

Twelve years after his first taste with success, Jain continues to avoid the media glare. Friends say it's this quiet attitude that cost Jain a campus placement at ICICI Bank, when they visited IIMBangalore for recruitment.

"Unlike other IIT-IIM graduates, Jain could not rattle off management theories to save his life," says one of Jain's batchmates at IITKanpur. According to Dhirendra Kumar of fund tracker Value Research, Jain did not manage funds differently from other fund managers. "He just kept it simple and committed lesser mistakes," says Kumar, who marvels at Jain's ability to bounce back with strong performance after a period of lull.

Sunil Shah, former managing director of HDFC Securities and owner of Evergreen Family Office, remembers Jain as a value-picker than a momentum player. "Prashant knows 300-400 balance sheets by heart," says Shah. "HDFC funds are not momentum-driven funds. They may not generate best category returns at all times; but they will remain in the top quartile at all times."

The institutional sales head of a leading domestic brokerage qualifies Jain as a 'strongly opinionated' fund manager, who trusts very few in the market. Jain, according to him, rips apart sell-side analysts who do not have strong views to support their stock recommendations.

"Jain talks to analysts with his own set of numbers, estimates and assumptions. If you do not have anything to counter his argument or excite him, he'll not suffer you long in his office," said the institutional sales head.

Such traits bring to the fore the quiet yet aggressive, steady but ambitious nature of a man who is otherwise a recluse. "I don't think my urge to beat the markets has gone down one bit. The day that goes down, a fund manager should stop managing direct money at least," says Jain, looking up from the spreadsheets scattered on his table. Maybe, it's this fear of failure that keeps him on his toes.

Indeed, the very thought of failure scares him. "If you are not scared to fail, you're more likely to fail. It's fine if you make mistakes with your own money... you're not answerable to anyone. But when you're managing money for people, failure does impact more," he says slowly, before turning to the endless numbers flashing across the computer screens.