Around 18th Century BC lived a King named Hammurabi who instituted a social law now known as the Hammurabi's code. It is the one of the first evidence of law ever written down. One of the principle features of the code was about the builder - If a builder built a house for a man & the house collapses to cause the death of the owner, then the builder has to be put to death.
Image Source: www.history.com
Such a punishment seems incredibly harsh especially when there can be many reasons for the collapse. But with such a heavy downside in place, the builder has absolutely no incentive to cut corners in constructing the house. He has to use the best materials & the best building techniques to build the best possible house which will last for a long time. The builder literally has his own skin in the success & longevity of the building.
This type of a system ensures a very strict moral obligation & not just a professional responsibility. How could this same moral obligation be translated to the fund management business?
The same could be extended to money management
There are two kind of money managers...
- The first kind manages your money for a fixed fee, without investing along with you. In other words, he does not lose, even if you lose.
- The second kind strongly believes in the scheme that he is managing, and hence invests his own money in it. Hence, he usually wins only if you win. This is known as having 'Skin In The Game’.
Having 'Skin In The Game' results in:
- Your fund managers behaving prudently.
- Their financial interest being aligned with yours.
- Them having less incentive to cut corners.
- Them having more than merely reputation, at stake.
We have our own Skin in the Game!
Ideally, in the fund management profession, one way to instill a sense of accountability is to ensure that the Fund Management team is investing their own monies along with those of the clients'. At PPFAS Mutual Fund, this ideal transcends into reality, as the key stakeholders in the Fund have invested in the scheme.
Total number of units held by 'Insiders' in the scheme as at March 31, 2016 is 4.92 Crores. This amounts to 12.91% of the current AUM.
Having our own skin in the game demonstrates the willingness to link our financial well-being with yours. This also places an implicit onus on us to make optimum use of our time & abilities.
By investing in our scheme and disclosing it every month, we believe that this one disclosure will serve to inspire greater confidence among our unitholders, than thousands of tomes of assurances ever can.