Announcement: Lorem ipsum dolor sit amet, consectetur adipiscing elit. Donec et quam blandit odio sodales pharetra.
It is high time Templeton moves or SEBI takes the initiative
The only large foreign mutual fund that thrived in India appears to be going through its worst crisis. That is evident in its AUM which has been consistently falling on a monthly basis. It all began with the fiasco of the six funds that were summarily shut down. With its trust on trial, where does Templeton go from here and what happens to the investors in those six funds?
Written By Shashank Gupta
Table of Content
Templeton’s April 2020 fiasco
April 2020 is surely a month that the investors in Templeton debt funds would like to forget. Six of the funds that managed a total AUM of Rs.26,000 crore were summarily shut down. The fund claimed that the fund shutdown was due to liquidity challenges in the bond market, but that was only the ostensible reason. The real reason was that Templeton debt fund managers had made some awful bets on high risk bonds that had gone kaput. What then followed, was a lot more agonizing.
A full 7 months later, the funds are still locked up with Templeton with investors none the wiser about what happens. The fund wanted the unit holders to approve the winding up through postal ballot, but High Court has asked a more basic question. How could Templeton shut down the fund without approval of unit holders? There are no answers. In the last 7 months, the case has been moving from one court to another but clearly the trustees have fallen short.
What Templeton needs to do?
In a crisis like this when 25% of the corpus is caught napping, the minimum you would expect from the CEO of the fund is transparency. However, the CEO has tried to befuddle the issue. The claim is that the six funds recovered Rs.8,500 crore from borrowers but that is only half the story. It is not clear how much Templeton has borrowed in the fund and whether the rest is the haircut or otherwise. Prima facie, it looks like the investors in the Templeton debt funds will have to take a haircut of 70-75% but clearly the fund and the CEO are averse to admitting it. With the fund hardly showing any initiative, it is time for SEBI to move in and take charge.
What the regulator must do?
The first thing that must be done is to appoint an independent valuer to get a transparent valuation of the portfolio on a best effort basis. But above all, it is time to fix responsibility. This is not a problem with Templeton alone but many Indian funds have been chasing low quality paper for higher yields. Business risk is one side of the story and rash fund manager decisions are a different issue altogether. If Templeton is not willing to hold its errant fund manager accountable, SEBI must do it. MF flows in India have been waning, which is why most MFs are on a selling spree. Such instances like Templeton only serve to deepen the fear in retail investors! ©