What Quant MF needs to clarify about the SEBI probe

Published: June 29, 2024 at 6:00 am

So far, Quant Mutual Fund has not made it clear whether it is being investigated for front-running. They have only said that they received inquiries from Sebi. It then released an FAQ that sheds no light on the investigation. The first faq is, “Has the SEBI enquiry concluded? : No, it is a regular ongoing process globally by regulators to collect data and analyze it.”

In this op-ed, SEBI-registered flat fee-only financial advisor Abhishek Kumar discusses why MF unitholders deserve more transparency from AMCs and the regulator.

About the author: Abhishek is part of a freefincal’s curated list of fee-only financial advisors and a fee-only India member. He can be contacted via his website, sahajmoney.com.

His journey has been published earlier: Fee-only Advisor Abhishek Kumar’s tap dancing to financial freedom.

“Sunlight is the best disinfectant.” – Justice Louis Brandeis, former associate of the US Supreme Court.

This is exactly what the public needs from Quant MF management as SEBI investigates it for suspicion of front-running. It would be better if the Quant MF management were more transparent about the ongoing investigation so that the concerns of unitholders and the public could be allayed.

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So far, Quant MF management has mostly given generic statements, such as unitholders should not get “capitulated” by market narratives and miss out on investment opportunities. They also assured that unitholders have nothing to worry about, as the fund’s management will continue unaffected, and the schemes remain high in liquidity.

When trust in the system is questioned, such generic statements do nothing but add fuel to the fire. The Quant MF management should make the actual nature of the investigation very clear to the public and unitholders.

When unitholders don’t get transparency in such issues, they start voting with their feet by walking out of the fund. Also, as the regulator, SEBI should give the public more information to maintain trust in the system.

There is also speculation that this issue could be because the AMC employees are highly intelligent but are not paid well compared to other AMCs, leading some to engage in front running. However, this reasoning, if true, does not justify such actions.

I want the management to say, ‘If there is an iota of truth about the front running, then responsible employees and agents would face the full brunt of the law’. Unitholders are minority owners, and protecting their trust should be the paramount concern of AMC management.

In my view, Warren Buffett is not the world’s greatest investor merely because he generated the best returns while running Buffett Partnership or Berkshire Hathaway. Many investors might have done or are doing better in generating returns. He is the greatest investor and steward of minority shareholders because of his best trait: Integrity.

For example, in 1990, there was a major controversy involving Salomon Brothers, a company where Berkshire Hathaway, where Warren Buffett was Chairman, held a 12% stake. Some employees of Salomon Brothers engaged in illegal bidding on US Treasury bonds, and the then-CEO of Salomon Brothers failed to act against the trader. The US Government banned the company from bidding in government bond auctions.

Warren Buffett stepped into the situation, and the US Government reversed the ban because of his integrity. Warren Buffett told the Salomon Brothers employees to instil the fear of strong action if their integrity was compromised: “Lose money for the firm, and I’ll be understanding. Lose a shred of reputation for the firm, and I’ll be ruthless.” 

Disclaimer: Recommendations, suggestions, views and opinions given by the author are their own. These do not represent the views of freefincal or its management.

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Pattabiraman editor freefincalDr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over ten years of experience publishing news analysis, research and financial product development. Connect with him via Twitter(X), Linkedin, or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free investment advice.
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