Sebi issues fresh benchmarking norms for portfolio managers

The Securities and Exchange Board of India (Sebi) on Friday tweaked rules on performance benchmarking and reporting by portfolio managers.

The regulator said portfolio managers should adopt an additional layer of broadly defined investment themes called 'Strategies', besides the existing investment approach.

At present, Sebi rules require portfolio managers to adopt an investment approach while managing the client funds. These broad strategies should be equity, debt, hybrid and multi asset.

"Each IA (investment approach) shall be tagged to one and only one strategy from the strategies as above. This tagging shall be at the discretion of the concerned portfolio manager. A portfolio manager may tag more than one IA to a strategy, but each IA must be tagged to only one strategy," Sebi said in a circular.

The Association of Portfolio Managers in India (APMI) should prescribe a maximum of three benchmarks for each Strategy. These benchmarks should reflect the core philosophy of the strategy.

While tagging an investment approach to a particular strategy, the portfolio manager should select one benchmark from those prescribed for that strategy to enable the investor to evaluate relative performance of the portfolio managers, Sebi said.

"This is a great move by Sebi to create distinct categories of products and more transparency for clients by selecting appropriate benchmarks. This helps in reflecting the true performance of the strategy," said Siddharth Vora, head of investment strategy , Prabhudas Lilladher.

"For example, a multi asset or hybrid strategy that is compared to equity benchmarks might grossly outperform in a bear market and underperform in a bull market, therefore misrepresenting the strategy performance. Having relevant benchmarks helps in fair evaluation of the strategy. A hybrid fund manager's true performance can be best observed by comparing it to a hybrid benchmark. Sebi evolving its reporting norms for PMS is a step in the right direction," Vora said.

The regulator said the board of the portfolio managers would be responsible for ensuring appropriate selection of strategy and benchmark for each investment approach. Once an investment approach is tagged to a strategy or to a benchmark, the tagging can be changed only after offering an exit option to subscribers without any exit load.