Young IIM graduates' fund gives record fat returns

At a time when many seasoned mutual fund (MF) managers are failing to give returns matching that of their fund's benchmark, students of the youngest Indian Institutes of Management (IIM) in the country - IIM-Lucknow - have given alpha (market beating) returns. What's more, this rare feat was repeated by the students for four years in a row as part of their practical learning process, despite the limitations of lack of realtime data streams. 


The equity fund for the batch 2009-11 (beginning July 2007, the fund was closed in January 2011) has contributed an impressive 17.96 per cent return, while the derivatives fund gave a huge return of 25.84 per cent. These compare excellently with the National Stock Exchange index (NSE) Nifty's returns of just 5.56 per cent during the same period. A corpus of over Rs.4 lakh was built with the class of 2009-11 contributing a minimum Rs.5,000 and up to a maximum of Rs.50,000. Responding to a query, a senior MF industry captain said one has to obtain a certificate and register oneself to sell a MF scheme, but virtually anyone can become a fund manager without any of these hurdles.

That is the state of regulations in the country. "A study of profile and background of fund managers, who are managing public funds, would reveal astounding diversity in experience, education and background," the same source added. On the other hand, selection as the fund manager of Credence Capital, the fund managing committee, was no walkover as they had to go through the grind of managing a notional fund, and outperforming the rest of the students before being selected as one of the five fund managers for Credence. The effort by the students of IIM-Lucknow is purely a student initiative in which the institution is not directly involved. The system was introduced after the institute's faculty realised that making them manage public money and doses of theory could mould students into excellent fund managers. IIM professors, Vipul and Manoj Anand, guided the process. "A committee of twelve students, including seven seniors, was formed for managing the fund. We had an exciting process in which heated debates were commonplace. But consensus was arrived at based on majority opinion," said Navin Prasad of the Credence Fund Managers, or the committee. "More than profit maximisation it was risk management and preservation of capital that were the keys. It is not that they always made money. Strict stoplosses were crucial to success," said Prasad. The fund managers of Credence Capital applied both fundamental and technical analysis to build the portfolio.

The students followed a systematic procedure involving selection of fund managers, appointment of a committee to approve investment decisions, updating student investors on the past week's developments and expectations for the next week. Credence is no run-of-the-mill kitty corpus, but a stickler to rules. It posted newsletters providing a summary of the happening of the past week and expectations for the coming week. The newsletter also analysed futures and options (F& O) data and gleanings were emailed to all investors, every week. "The challenge was to do all the analysis based on publicly available data. We did not have any data streams like Bloomberg or Reuters, used in mutual funds or treasuries," said Rahul Krishna, who was one of the leaders of the team.

Krishna, who had some prior experience of working in a treasury before boarding the management bandwagon, said, "In fact, we are spending 60 per cent of our time in management of the fund and only 40 per cent on studies." No wonder, many of these aces have been offered positions at global financial sector biggies like Goldman Sachs, Citigroup and JP Morgan.