One tends to associate annual general meetings (AGMs) with long speeches read out by chairmen, the passing of complicated resolutions solemnly read out by the secretary, the giving of speeches by members under the garb of raising questions, or producing couplets to trigger the generosity of a tight-fisted chairman. The board of directors on the dais generally treat the proceedings as a ritual to be quickly gone through, while keeping a nervous eye on the clock, heaving a sigh only when the vote of thanks is on.
The chairman’s speech may occasionally see some major announcements, but most often it is a recitation of why things went badly and why nature and governments conspired to deny their company its rightful place under the sun. And of course, the speech would always dutifully end with a carefully phrased thanksgiving to all significant stakeholders including the government and regulators for their ‘support’ — even if they have been responsible in some measure for the mess the company finds itself. And of course there are noisy and occasionally unruly crowds signalling a ‘give me more’ message — whether that pertains to dividends, company coupons or gifts.
But this was an AGM with a difference — conducted by a mutual fund for its unit holders. Reflecting a willingness to open themselves to scrutiny (rare in Corporate India), it was an opportunity for seasoned investors and laymen alike, to grill operational managers on their buying and selling decisions. The Parag Parikh Long Term Value Fund (formerly PPFAS MF) conducted its third annual general meeting of unit holders in Mumbai on Saturday. It was also webcast for those who wanted to join online. The main speech was short, the questions were also mercifully short, the answers thoughtful and the proceedings dignified.
Chairman and CEO, Neil Parag Parikh, opened the proceedings briskly with a primer on the fund’s philosophies and strategies. He started with a slide titled “Law of the farm,” which he cheerfully admitted was there last year and would be at the start of next year’s AGM also. In that slide he explained that what was sowed today cannot be reaped tomorrow itself — an allusion to the fact that investments need time to grow and need nurturing and follow-up.
Investment for long term
Neil laid out the markers for his fund and reiterated the belief in value investing principles and the focus on preserving capital and a reasonable rate of return. Mindful of his dad’s advise (late Parag Parikh), Neil said that this meant they would not chase high PE stocks or fancy stocks. He explained that they would buy businesses for the long term, look for credible and trustworthy management which respected the interests of minority shareholders, which had a moat around in terms of competitive advantages, used less capital, had pricing power and was available at attractive valuations.
Detailing the strategy to invest in foreign companies such as Alphabet, United Parcel Services, etc, Neil said they would focus on companies in the US and Western Europe given that they had their balance sheets in English and had a long history of corporate governance.
He ruled out investments in companies in countries such as China, Brazil or Indonesia. The fund has about 28 per cent of its portfolio invested in foreign equities at the end of September. Elaborating the benefits of staying invested for the long-term, Neil said the promoters and employees were walking the talk since their share in the fund was at 12.91 per cent as of September 30.
A rights issue is on at present to increase the fund’s net worth to ₹50 crore from around ₹45 crore, as mandated by market regulator SEBI.
When the floor was opened for questions, they came quick and straight from unit holders who questioned the stock picking and debated the wisdom of some choices while comparing them against the laid down benchmarks. Fund Manager and Chief Investment Officer, Rajeev Thakkar and Raunak Onkar, Head of Research, fielded questions with calm aplomb. There was homespun wisdom, clarity and humility and the weight of accumulated experience while clarifying investor queries.
Well thought out answers
So, when a questioner wanted to know about the global situation, the impact of problems in China as well as the fears of a collapse of Deutsche Bank, Rajeev drew a comparison to 2008 and the fears of a domino effect. But just as there were lots of fears about Greece some months ago and no one seems to be worried about it now, or just as there was a temporary setback from the unexpected vote on Brexit and a week later the markets had regained new heights, the picture this time too was uncertain. The short answer, Rajeev said, is I don’t know what will happen.
When another investor wanted to know about the investment in ILFS Investment Managers, Rajeev admitted that if it was possible to go back in time, he would undo the decision to invest. While they still loved the business model, it had not worked out as well as they had hoped for, and they had reduced weightage, he conceded.
When urged by an investor to start a liquid fund, Rajeev said such a decision is still far away. He said candidly, “Our expertise is in equity and our scale is not conducive for liquid funds.” He explained that the returns from a liquid scheme will be lower since they will not immediately be able to buy commercial paper or commercial deposits. They would have to deploy the money in collateralised borrowing and lending operations (CBLO) window of the CCIL and the returns there were lower.
The original article could be seen here.