Crisis and Redemption: A Fund of Lessons
As I drive through the sweltering heat of Chennai to meet my lunch date with Sanjay Sapre, the outgoing President of Franklin Templeton India, I decide to stick to the salads on the menu. The primary focus of this discussion is to get Sanjay to talk about his leadership and crisis management lessons learned from Franklin Templeton’s (FT) controversial decision to liquidate six of its debt programs in April 2020.
But the moment Sanjay walks into the lobby of the Taj Club House, the hunger pangs hit. I break my resolve and order a Mysore masala dosa instead, while Sanjay comes with a grilled chicken Caesar salad.
Anatomy of a Crisis
I ask Sanjay about the highs and lows of his time as chairman of FT since August 2016. The low point, Sanjay says smiling, is easy to pick. “It was the day we found ourselves in a position where we had to liquidate six of our debt funds.
“He sees the high point as the year 2019 when FT’s Indian business, a dwarf in the global scheme of things, turned out to be the best performing market in the world. But dealing with the liquidation decision has also led to immense personal learning which he considers to be positive.
This opening makes me wonder what happened in FT before this drastic decision. There has never been a precedent of a mutual fund in India suddenly closing open-end schemes, preventing investors from withdrawing their money.
The decision to liquidate was a difficult one, says Sanjay, but with a liquidity crunch that froze bond markets due to Covid, the board and management saw it as the best course of action. “We made the decision based on what would be best for unitholders. We had to decide whether we wanted liquidity at all costs or value preservation. If we had held junk, we might have taken cash at any cost. But since we were confident about the quality of the portfolio, we felt that the right price could not be discovered in this market situation. »
I must have sounded skeptical because Sanjay adds, “No one believed us then when we said we were confident in the quality of the portfolio. But over a period of time, most of the portfolio was liquidated and monies returned to investors. Till date, FT has repaid ₹26,098 crore to investors which is around 103% of the amounts outstanding in April 2020 across the six schemes.
Our orders haven’t arrived yet and I’m resisting the temptation to dive into the vadams (rice chips) on the table. Sanjay ignores them as he is totally focused on the interview.
Manage the backlash
FT had dropped this bomb at 9:30 p.m. on the fateful day. I ask Sanjay what preparatory steps have been taken to deal with the backlash. Sanjay remembers the phones ringing non-stop at the FT offices. But an internal call had informed everyone and armed them with a set of FAQs to answer questions. Most investors were unhappy that FT did not give a time frame in which the funds would be returned.
Sanjay says it was because in April 2020, with the Covid panic at its peak, no one, even within FT, knew then whether market conditions would improve in days, weeks or months. “We didn’t have the luxury of taking time before announcing this. The market had frozen. There was a day when there were no government security trades for 30 minutes – that had simply never happened in history. He points out that even when the lockdown was announced in March 2020, no one knew how long it would last.
FT had a good communication strategy in place, writing to investors fortnightly. “We wanted to convince people that it wasn’t a scam and that we wouldn’t run away with the money. Transparency was the best way to give people confidence.
My Mysore masala dosa arrives, neatly folded into a square, with a generous filling of potatoes, two types of chutney and a steaming sambar. I dig immediately after apologizing for using my hands, as I have no intention of mutilating creation with a fork.
As he tosses his spartan salad, Sanjay comments that he too is a idli-dosa fan, with South Indian dishes appearing on her menu every Thursday, when the family goes vegetarian.
The food puts me in a good mood and I comment that FT finally managed to return most of the money before the time originally stated. How? Sanjay highlights three factors. “We knew that when the markets became more liquid, many of these securities would become more sellable. If interest rates continued to fall, refinancing would become attractive for many issuers. We had covenants which, if breached, would trigger advance payments. It all played out, helping the early liquidation of most of the portfolios.
I mention that many journalists, including me, held investments in FT funds. The short-term income plan is a fund where 100% of the money has not yet been repaid and the contributions remain. Sanjay jokingly asks me not to worry as he also owns this fund. “But you’re richer than me,” I retort. Sanjay jokes that he’s not so sure.
Born in Mumbaikar, Sapre went to Campion School and Sydenham College. He worked for a few years before pursuing his MBA in Marketing and Operations at Ohio University. Prior to his 20-year stint at FT, Sapre worked with an American IT company and Thomas Cook. “I am IATA certified, so I can work as a travel agent!” jokes the 52-year-old.
Having made substantial inroads into masala filling, I suddenly find myself full and trying to munch on the crunchy sections alone. We order fresh orange and lime juice to wash down our meals.
I ask Sanjay what FT plans to do to repair the substantial brand damage caused by this saga. He doesn’t cover and admits the mark has taken a hit. “But if you ask me if Franklin Templeton has deviated from his values, we believe that is not the case. We have not taken any decision contrary to the interests of investors. But the perception of the brand has been impacted and it is up to us to rebuild it. We saw the first stage of this reconstruction as the return of the money. Until we did that, we thought there would be very little receptivity to hear any other message. After reimbursing most of the money, we are planning a series of engagements with investors and distributors to let them know that FT remains a brand they can trust.”
In the age of social media, most investors get their news from WhatsApp or Twitter. So how did FT deal with the social media fallout?
FT analysis showed that 95% of social media commentators on this issue were not investors, but viewers. So he decided that trying to respond to every social media post was a losing strategy.
“By doing this, you are only giving credence to the claims and fueling the popularity of people trying to gain subscribers. Our largest audience was investors in these debt schemes, followed by investors in our other schemes and our distribution partners, so we made a very conscious decision to target our communication to our investors.” When there were genuine queries on social media, FT DMed to resolve them offline.
I switch topics to stock markets, which have been on a song, Covid or no Covid. The behavior of retailers this time has been different. When markets fell, MFs attracted new money. Is this more mature investor behavior or naïve risk-taking?
Sanjay says it’s a bit of both. “As a 28-year-old industry, we now have a certain level of maturity not only among investors, but also among advisors, commentators and the media. There’s a lot of talk about managing volatility, sticking to your asset allocation, etc. But there is also a new group of investors who have only seen a one-way market. They have seen the March 2020 correction and the rapid rebound and believe every correction will mimic that. Combine that with FOMO (Fear of Missing Out) and gluttony and you have a good cocktail! But I think now the TINA factor (there is no alternative) for stocks is decreasing. Real estate is recovering, interest rates are rising.
An hour has passed and it’s time to finish. I ask him how he personally coped with this crisis. Did he start reading the scriptures or doing yoga?
It makes you laugh — “Honestly, I didn’t have time to do all that. Working from home during the crisis really helped me because I had the support of my family. The core team at work really rose to the challenge and were great. FT as an organisation, being very clear in its values in terms of putting customers first, has also made it easier. »
Exercise has also helped, with Sanjay and his family being avid cross-fit trainers.
Sanjay gets a little emotional as he adds, “The amazing thing is that a lot of my friends had invested money in these funds, but no more than three of them called me to ask. questions about this. When I told them that we intended to return the money within a specified time, they were happy and I never heard from them again. I really enjoyed that!
I know Sanjay is set to step down from his current role as Chairman of FT India to take on a global role in July. I ask him what the role is. “In the global role, I will lead the D2C initiatives for FT. FT is not a household brand like Amazon or Google. For us, D2C means better understanding the investor, so that it has a ripple effect on our business. There is now a universe of investors who choose to be self-reliant and part of the role is to engage with them. I have a hypothesis that the next generation of investors will behave very differently in terms of receiving, processing information and making decisions. Understanding this change and preparing for it is going to be very exciting,” he says as we wrap up.
April 10, 2022