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From crisis to Harvard B-school

P Vaidyanathan Iyer | August 26, 2003

On August 21, M Damodaran, administrator, Unit Trust of India (Special Undertaking) and chief executive officer, UTI Mutual Fund, made a presentation to a Parliamentary consultative committee on the status of the mutual fund behemoth since the shock of July 2, 2001 when sales and repurchase of its flagship US-64 scheme were suspended.

Many Parliamentarians, including Finance Minister Jaswant Singh, were particularly impressed with his Power Point presentation. The fact that the mother of all business schools, Harvard, had expressed interest in undertaking a case study on UTI's revival, is a vindication of the government's decision to appoint a babu at the helm of UTI.

Damodaran took the opportunity to make a strong pitch for allowing both UTI (SU) and UTI MF to explore new business opportunities. In the just-over-two years since his appointment as UTI chairman on July 15, 2001, the 1971-batch IAS officer of the Tripura-Manipur cadre, has turned the mutual fund around and helped restore the confidence of its myriad investors.

The government's decision to honour all commitments made to the UTI investors certainly helped Damodaran to make the behemoth stage a comeback.

Damodaran has not only reviewed the investment decision-making process and prudential norms, but has also documented them to institutionalize transparent, effective and unbiased fund management practices. Fund managers are fully empowered, though with checks and balances.

UTI MF now boasts of being the only fund with a full-fledged risk management department and front-office automation system for all investment-related activities with back-office integration.

A performance-linked incentive system and a fast-track promotion scheme have done employee morale a lot of good. To reduce flab, a Voluntary Separation Scheme has also been announced.

The VSS package -- three months' salary for every year in service is much more attractive than what even the public sector banks offered.

It is expected that the mutual fund will be able to more than halve its strength to about 1,000 employees after the VSS. No wonder investors have returned to the trust, with UTI MF's first liquid-fund scheme mopping up Rs 1,100 crore (Rs 11 billion) in 48 hours. The fund also launched India's largest exchange-traded fund, Sunder.

During the current calendar year, the fund declared 27 dividends and two bonus issues. Six new schemes are in the pipeline. As on June 30, 2003, the funds under the management of UTI MF stood at Rs 16,015 crore (Rs 160.15 billion), which is 15.29 per cent of the total assets under management by the mutual fund sector in India.

Between February and June, it increased by Rs 1,539 crore (Rs 15.39 billion) or almost 11 per cent. Including the assets of UTI (SU), the total funds under UTI MF's management top Rs 45,000 crore (Rs 450 billin).

If the internal estimates of UTI MF are anything to go by, the fund corpus is expected to cross Rs 30,000 crore (Rs 300 billion) by March 2004. Another significant achievement that has encouraged Damodaran to pitch for the business of managing the government's residual stake in divested companies is the remarkable appreciation in the market value of Special Unit Scheme (SUS) 1999.

The SUS was created in June 1999 by transferring to the scheme the public sector undertaking portfolio of US-64, which had a market value of Rs 1,528 crore (Rs 15.28 billion) on June 29, 1999, at its book value of Rs 3,300 crore (Rs 33 billion).

The Centre had fully subscribed to the scheme by issuing five-year government securities of Rs 3,300 crore (Rs 33 billion), which carry an interest rate of 11.24 per cent. As on August 18, 2003, the SUS-99 units have a net asset value of Rs 157.56 per unit compared to Rs 45.96 on June 30, 1999.

The market value of SUS-99 has now more than tripled to Rs 4,679.65 crore (Rs 46.80 billion) compared to Rs 1,528 crore at its inception.

While the Sensex declined 0.8 per cent during the period, the SUS-99 portfolio has posted a compounded annual growth rate of almost 35 per cent. Damodaran also hopes to bag the mandate of becoming one of the pension fund managers in the country.

The Union Cabinet had on August 23 cleared a defined contribution pension scheme for new government recruits. The proposed Pension Fund Development and Regulatory Authority would allow six players in the market to start with, of which one would have a public sector character.

UTI MF may well be the chosen one, if Damodaran has his way.

UTI-Investor Services Ltd is being positioned as a business process outsourcing player having already been given the job of issuing permanent account numbers to taxpayers by the finance ministry. It is ready to handle other similar jobs that may be outsourced by the government.

The Harvard Business School will have little choice but to include a brief profile of Damodaran in its case study.

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