UTI-Shinsei targets Indian and Islamic equities

Praveen Jagwani became CEO of a new joint venture based in Singapore between UTI, the state-owned Indian fund manager, and Shinsei, the foreign-owned Japanese bank. 

Why choose Singapore to launch an Indian-Japanese JV?

Praveen Jagwani: It is about capturing the region. There are a lot of people in Singapore managing India investments, and there are many offshore funds catering to the region's investors based here.

We didn't want to be in Japan and be Japan-centric and be in India and be India-centric. So a neutral territory was chosen to cover most of Asia. And then Singapore seems to fit well for both the plans.

What explains the shareholding structure?

Shinsei and UTI have a very solid relationship. That's come out of a lot of transactions they have done in the past. Now this JV was established about a year and a half ago, with 51% from UTI and 41% from Shinsei, with a mind to explore opportunities in Asia. 

It works to the strength of both entities. Shinsei has got the distribution in Japan, and capabilities in Asian Reits. UTI brings to the table is, if I may, fund management preeminence. It has been around since the 1960s.

What will the JV do?

There are four core revenue lines. First is distributing global products in Japan through Shinsei's distribution mechanism. Second and third are distributing UTI's Asian and Indian equity and fixed-income management capabilities, to private banks, insurance companies and directly to institutional investors.

Fourth is to bring global products to India. Resident Indians can invest up to $200,000 a year in global products. At some stage, there will be a hunger for good quality global products, so Indians can diversify their risks.

How would you describe the culture the JV is trying to build?

We've got the conservative culture of UTI. Nobody wants any swashbuckling, shooting from the hip kind of investment managers anymore.

What's your AUM?

We run about $300 million. Most of this is outsourced to UTI's product arms in India for Indian equities. A smaller amount is invested in Asia ex-Japan equities by this office in Singapore. No one offshore is allowed to invest in Indian debt without being a licensed foreign financial institution (FFI) with a quota.

Why launch a JV when both Indian and Japanese fund companies are struggling?

I am a glass is half full kind of person. 2009 seems like the perfect year to launch my platform: with the least amount of competition around. So if I have to build my contacts with say, an Australian superannuation fund, or some of the giant distribution networks in Korea or get some institutional mandates from Taiwan, or set up an Islamic fund in Malaysia or Brunei, this is the perfect year to do it, because no one else is doing it. Everyone else is counting their pennies and staying firmly fixed in their comfort zones.

Which of these areas are you particularly focusing on?

The most exciting space for me is the Islamic space. [Harvard Business School guru] Michael Porter said that either you are a low-cost producer or the best performer, and if you can't do either of those, then you had better differentiate. So my idea is to differentiate.

Selling vanilla equity now in current environment is not perhaps very bright. So as a tactical spin of things, and as a future, long-term growth area, Islamic India equity is really something that captures the imagination. That's the starting step, to be followed by Islamic Asia equity.

We are looking to tie up with a takaful [Islamic insurance] player and an Islamic bank, either through a co-branded vehicle or a sub-advised vehicle. I have spent some of my career in the Middle East, in Bahrain and Dubai. I have contacts in that part of the world.

Will you attract non-Islamic investors this way?

I know what an Islamic equity fund can do. Just look at last year's performance. The worst performers last year were banks. And Islamic investments typically stay clear on anything that has to do with interest. So the banks are out.

The performance of Islamic versus conventional ones last year was exemplary. And a lot of people have shown interest in India. India is a sort of the few countries which still has a growing economy. After China, it's the only country showing you six-and-a-half percent of GDP growth.  

Economies of scale are hard to achieve in Islamic investments, though, because different clients prefer different sharia codes.

I can run independent mandates for different investors, until I come to a size and scale where I can afford to have my own sharia board, and which has its own scholars and which are present in both the Middle East and Southeast Asia.