The factors that have spurred the stupendous rise in PMS assets

High net-worth individuals (HNIs) in India coming largely from entrepreneurial backgrounds like to feel that they're involved in managing their portfolios, which has led to the rise in overall assets under management (AUM) of the portfolio management services (PMS) industry, says Nitin Raheja, Executive Director, Julius Baer India.

Portfolio management services come bundled with curated advice, targeted mandates and access to tools that make them feel they are in the co-pilot seat, he says.

This assumes significance as the cumulative AUM of the sector has more than doubled in the last five years, growing to ₹32.22 lakh crore as of January 2024 from ₹15.40 lakh crore in January 2019.

In fact, the number of portfolio managers has more than doubled in the last seven to eight years to 400-plus.

“PMS has historically been a bull market product. However, the offering has evolved dramatically over the past few years. The ability to manage risks while delivering high quality returns has been well appreciated,” says Raheja while adding that the growing demand for fund management services outside the traditional mutual funds space have been key drivers for wider acceptance.

According to Raheja, portfolio managers have also leveraged financial distributors aggressively to educate affluent customers on the benefits of PMS services and the growing recognition of fund manager assisted direct equity portfolios and its inherent benefits have helped pivot investor portfolios towards our industry.

Interestingly, the segment received a regulatory push as well when capital markets regulator the Securities and Exchange Board of India (Sebi) amended the rules for the industry in 2020 to enhance the transparency and disclosure norms.

“The creation of APMI (Association of Portfolio Managers of India), and the standardisation of reporting orchestrated by Sebi has been a much-needed breakthrough for manufacturers, distributors and investors. Regulations right from operational aspects such as POA, pool account, minimisation of inhouse brokerage related conflict of interests have all gone to institutionalise the business and have provided an added layer of safety to client assets,” says Raheja.

“Further standardisation of performance reporting matrices has enabled clients to take better informed decisions while choosing between managers. We believe, all these actions have made PMS’s more ‘appealing’ to investors. For distributors, the fact that a professional fund manager is executing trades on behalf of his client gives him additional comfort over a self-directed portfolio,” he adds.

The growing demand has also led to the emergence of many boutique firms launched by well-known and marquee names from the fund management industry.

“Standardisation of products in the mutual fund space and regulatory pressures, has been one reason for several MF stalwarts to set up shop under the PMS/AIF umbrella… Further the relatively smaller fund sizes when compared to mutual funds enables flexibility, nimbleness and an ability to provide concentrated portfolios to provide alpha for clients,” explains Raheja.

Going forward, however, Raheja believes that the industry will need to deepen its research coverage and add capabilities across asset classes to succeed in creating holistic portfolios for clients akin to mandate solutions that are provided by asset managers in global markets.