Multi asset allocation is the way to go: Union AMC’s Madhu Nair

With a nearly 25-year track record across industry giants like HSBC, Kotak, and Invesco Mutual Fund, Nair is on a mission to simplify investing, cutting through market noise with a focus on long-term strategies that align with investor goals and risk tolerance.

In a recent conversation with Mint, he shared Union AMC’s vision of sustainable, steady returns over market speculation. As the company rolls out its Union Multi Asset Allocation Fund and prepares for launches like quant-based and gold-focused investments, Nair is steering Union AMC toward a balanced, diversified approach tailored to withstand market turbulence.

What are some of the developments since you have taken over?

In the last six months, we have been focusing on launching products that aim to provide the right outcomes for investors while markets are volatile.

It’s very difficult to predict short-term outcomes in asset management business. However, the leadership team at Union AMC has experienced multiple market cycles, including the tech meltdown, the global financial crisis, and the mid-cap and small-cap cycles in 2017. This collective experience has helped us make informed decisions.

For example, in August 2024, we launched our multi-asset fund. During that time, many thematic new fund offers (NFOs) were garnering a lot of money. But we decided to focus on asset allocation instead, as we felt that valuations were looking stretched, especially in certain pockets. We emphasised the importance of asset allocation, which is often an underrated strategy, as investors tend to be swayed by recency bias.

What is the rationale behind launching a multi asset fund?

When we launched the multi-asset allocation fund in August 2024, our focus was on creating a portfolio of uncorrelated asset classes, such as equity, fixed income, and gold. We believed that asset allocation was a time-tested strategy that could protect investors from short-term market fluctuations.

Our equity allocation in the multi-asset allocation fund was initially cautious, around 45-50%, with the rest in arbitrage. We also had a significant allocation to gold, around 20-22%, as we believed gold was in a good cycle due to increased demand from central banks and the shift in global trade dynamics.

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The key was to avoid market timing mistakes and focus on long-term investment strategies, as we believe investors often overestimate short-term market movements and underestimate the long-term benefits of these strategies.

What is your investment philosophy at Union AMC?

We have a robust valuation model that we use across all our funds. At the core of this model is the discounted cash flow (DCF) approach, where we project the future cash flows of a business and discount them back to the present value to determine the fair value.

We also look at various other valuation metrics, such as price-to-earnings and price-to-book, to get a comprehensive view of the market.

Have you made any recent changes in the investment process?

At the core of our investment process is the fair value approach, which is based on the discounted cash flow model. However, we’ve made some enhancements to this process over the last few months.

Firstly, we’re placing a strong emphasis on data-driven insights to better understand business cycles and our position within them. This is essential, as a stock’s performance journey is rarely linear, often marked by phases of both outperformance and underperformance.

Secondly, we’ve consciously tried to steer our discussions with analysts towards a more probabilistic approach. Instead of just focusing on the expected return, we now try to articulate potential upside and downside scenarios and the probabilities associated with them.

How is your investment team positioned?

Investment excellence is the core of our strategy, and we have built a strong investment team led by Harshad Patwardhan, our Chief Investment Officer (CIO), who has over 28 years of experience in the industry.

We have a 16-member core investment team that is focused on building a robust investment process, with a strong emphasis on performance orientation and innovation. We are constantly looking to enhance our capabilities and exploring new investment strategies.

How do you plan to expand your investor base?

Our expansion strategy leverages Union Bank’s extensive network of over 8500 branches and 21 crore customers which has already proven effective with our Union Multi Asset Allocation Fund launch.

We plan to continue focusing on Union Bank’s captive channel while expanding our mutual fund distributors (MFDs) network, which currently includes over 21,000 distributors. We also plan to reach out to more distributors and strengthen our partnerships with national distributors like NJ and Prudent, as well as with strong banks across the country.

We’re also building a dedicated institutional team, which has already driven growth in our liquid fund, and we see great potential here by leveraging Union Bank’s corporate relationships.

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Additionally, we’re exploring international opportunities, particularly in Japan through Dai-ichi Life Holdings. Inc (co-Sponsor) network. Investment in technology and process improvement remains key to enhancing efficiency and delivering a seamless experience for our investors.

We have also been investing in technology to automate processes and improve efficiency across functions. By minimising costs and optimising resources, we aim to provide a better experience for our investors.

What challenges do you see today?

A major concern is the tendency of digital platforms to prioritise short-term performance metrics, often overlooking long-term consistency and risk management in the process. Investors can get easily swayed by the “hot” funds or strategies being highlighted, without fully understanding the underlying risks and suitability for their investment horizon.

While digital platforms present significant opportunities for customer acquisition and awareness, they also come with their own set of challenges.

Maintaining consistent performance holds more value than just highlighting recent years’ returns. On digital platforms, it’s essential to showcase a consistency metric prominently alongside traditional return figures, empowering investors to make better-informed decisions.

The ease of access and convenience of these digital platforms can sometimes lead to impulsive investment decisions, as investors may be tempted to churn their portfolios more frequently. This may be detrimental to their long-term wealth creation. We need to find ways to nudge investors towards more sustainable investment strategies, rather than just chasing short-term performance.

What is your assets under management (AUM) target in the next 5 years?

AUM is an outcome in this business. We are focused on building the business on three pillars: investment excellence, distribution reach, and operational efficiency.

Our mission is to act as an enabler for investors to achieve their financial outcomes and benefit from the golden period of the Indian economy. Our endeavour is to create happy investor experiences over the long term, and all our efforts would be in that direction. We believe that if we continue to focus on the above, we should exceed 100,000 crores of AUM in the next five years.

Any plans to enter an alternate business?

We are evaluating new asset classes provided by SEBI, along with alternative investment fund (AIF) and portfolio management services (PMS). Recent regulatory changes in GIFT City have also opened up new avenues for us to launch retail-oriented funds for non-resident Indian (NRI) investors. Here, we can leverage our investment expertise in India to offer products to offshore investors, and we may soon launch our products there.

What products do you plan to launch in future?

We are excited about our quant-based active momentum fund, which we plan to launch in the coming months, the back-testing and live testing have shown promising results. This will be an active fund, unlike the passive momentum-based mutual funds in the market.

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As part of our product expansion plans, we are in the process of filing various fund of funds and gold ETF for launching in the next few months.  

Your advice for investors?

As an industry, we need to focus on providing clear, data-driven investment strategies to investors, rather than creating headlines about market movements or global events. Investors don’t need complex jargon or predictions about the US markets or elections; they need simple time-tested strategies that align with their cash flow needs and risk appetite.

Our approach is to educate investors on the importance of understanding their own financial situation and making investment decisions accordingly. We emphasise the need to have a well-diversified portfolio and to avoid emotional biases that can lead to poor investment decisions.