Portfolio management service providers hide more than they show

The sketchy reports that Portfolio Management Services give to investors seem designed to make it difficult to evaluate their services; is it time for SEBI to step in? Dhirendra Kumar writes.

The sketchy reports that Portfolio Management Services give to investors seem designed to make it difficult to evaluate their services; is it time for SEBI to step in?

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Last week, I received an email from an angry customer of a Portfolio Management Service run by the subsidiary of a large Indian bank. This investor had written about the investment performance of the PMS in highly critical, in fact, almost abusive, terms. Attached to this email was a 'Portfolio Appraisal' issued by the service. The investment performance of the stocks in the portfolio was terrible-losing 30% in a period over which the Nifty is down 9%, but that's hardly surprising for a PMS. What shocked me was how useless this so-called appraisal was.

There's an old business adage that you can't manage what you can't measure. By this count, the appraisal seems designed expressly to prevent the investor from figuring out anything about how the service is managing his portfolio. For each of the 17 stocks in the portfolio, the appraisal has the amount invested, the current value, the percentage of loss, and each stock's weightage in the portfolio

The statement does not mention when each stock was bought and what the actual rate of loss was. This makes it impossible to compare the investments to each other and get any sense of what the portfolios managers were actually doing. There's also no way of evaluating the portfolio's performance as a whole, and comparing it to some external standard.

Clearly, PMS providers are actively interested in hiding such information. Active investors should run these numbers themselves. Of course, one hopes that at some point SEBI will get around to enhancing disclosure norms for PMSs as it has done for other products.