Indian markets are illiquid for quant: Niek Molenaar

Last Updated: Mon, May 26, 2008 03:49 hrs

The managing director of Robeco Asset Management, Niek Molenaar, is not too wary of the crowding mutual fund street. But, the Mumbai traffic and the unruly motorists drove him crazy during his first visit to the country.

He was here to take note of the progress on the company's recent marriage with Canara Mutual Fund to form Canara Robeco Mutual Fund. "They did a terrific job. Joining two companies is a big hassle, but we have gone through it rapidly.

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"We can now move from building mode to delivering mode," he told Khyati Dharamsi and N Sundaresha Subramanian on a traffic-ridden drive from Gateway of India to Lower Parel. Molenaar, who dived into the profession of capital markets on the Black Monday of 1987, has in later years evolved as a business developer with Robeco. He shares the views on India and asset management.

What are your views on the Indian market?

In India there is a strong growth pattern. We initially saw some downturn, but it is only tactical. It will improve in the coming years. Consumer demand will be the driver. All companies will in turn benefit from the demand. Developing countries such as India will require more infrastructure.

The wealth is spreading to the middle class, instead of remaining at the high end of the market. It is during this point in a typical cycle that you will see the market growing dramatically. The financial sector has been hit big time in all markets. We expect some upturn and some above average returns in this sector.

What are the products that Robeco is planning to bring to India?

We are looking at a new product for the market before September. We are looking at a combination of the consumer theme and the financial sector or a

consumer theme-driven product alone. You can't bring in too niche a product, when there is no appetite in the market due to volatility. If it's too niche, may be you will make a few million. But, we are looking at $50-100 million per product at the start, and targeting a total asset base of $5 billion in three to five years.

How has been the response to the offshore funds by Robeco AMC that invest in India?

We have an emerging-market product line that invests 5 billion euro ($7.5 billion) in countries including India. It is a good selling product. Three years ago it was 1.5 billion euro, and it has grown dramatically.

Currently, about 10% of the fund is invested in India. This is on a top-down approach. In the US and Europe, you see a lot of appetite for such products (emerging-market dedicated). Most of it is driven by the fantasy that countries such as China and India are bringing to the proposition.

What will the Canara MF-Robeco AMC tie-up bring for India?

By helping Canara MF bring some money to the table, we thought we would help them and help us get some quality in asset management. We have hired two chief investment officers, to add to their capabilities. There is also interaction with the global equity team, which we have in place in New York, Holland and Paris that is possible.

We have a specialised sustainability product line, which we would try to export to India. Having a 25-year experience in quant investments, we would bring it to India and add the local flavour.

Quant funds are already out in India. Are you going to jump into the quant competition soon?

No. Not immediately. Currently, 20 billion of assets are managed in quant only. Most of our products are managed with support tools of quant filters. The first priority would be to bring one or two products next to the infrastructure product. Sustainability is also on the line.

What adaptations would the international quant product need before being exported to India?

If you are looking at liquid markets, you can transport the model with few nuts and bolts. But, in illiquid markets such as India still is, you can't buy into the market so easily - when we run into liquidity issues, then we have to make some adaptations. In Europe we have a lot of quant leveraged products. We are going extra long and extra short to make sure we get a higher alpha. Typically with quant products you get a highly diversified lower alpha portfolio.

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Any other business line that you aspire to foray into in India…

For the moment it is only asset management. Once you are into asset management you can go elsewhere. But, you can't say that I am into XYZ industry, and now I want to start asset management operations.

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