Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

HK Type 4 license through Ballingal Investment Advisors Ltd. ("BIA" or "BIAL")

BACKGROUND
I have 20+yrs experience in Asia doing alternative strategies (i.e. non-delta1 non long-only) in fixed income, equity derivatives, and activist/catalyst/event-driven and long-short equity strategies with most of that time spent managing money. 

4 years in fixed income macro, 8 years running internal hedge fund and 4yrs investment banking at Citi in Japan, 3 years running an Asia multi-strat portfolio at a hedge fund, 4+yrs as an independent special situations analyst.

Pan-Asia Catalysts/Events

Hexaware Exit Offer Reverse Book Build Gets 90% & Discovered Price - Now We Wait

Hexaware Tech Done at INR 475. Now For The Residual

Quiddity Advisors

Quantitative Analysis

<p>On Friday, SEBI put out a Circular <a href="https://www.sebi.gov.in/media/press-releases/sep-2020/clarification-pursuant-to-circular-dated-september-11-2020-regarding-asset-allocation-of-multi-cap-schemes-of-mutual-funds_47546.html" target="_blank" rel="noopener"><em>Regarding Asset Allocation of Multi Cap Schemes of Mutual Funds</em></a> which specified that Indian Mutual Funds (or "Schemes") with a <strong>Multi Cap</strong> label would be required to put a minimum 25% of assets in each category of stock - Large Cap, Mid Cap, and Small Cap -pursuant to the 2017 SEBI circular (<a href="https://www.amfiindia.com/Themes/Theme1/downloads/1507291273374.pdf" target="_blank" rel="noopener"><em>Categorization and Rationalization of Mutual Fund Schemes</em></a>) which required that Schemes manage the assets "true to label." The new requirement necessitates equity weightings of at least 75% and beyond the minimum 25%, funds are free to allocate the excess as they wish (the old requirement from the 2017 circular was 65% total in equities and no restriction on market cap bias). </p><p>SEBI has given funds four-plus months to complete this reshuffling of portfolios - until 31 January 2021.  On the 13th, SEBI issued a clarification noting:</p><div data-page-number="1" data-loaded="true"><blockquote><div>Some sections of media have reported various views on the circular and various conclusions in respect of the same are being drawn. SEBI would like to clarify that Mutual Funds have many options to meet with the requirements of the circular, based on the preference of their unitholders. Apart from rebalancing their portfolio in the Multi Cap schemes, they could inter-alia facilitate switch to other schemes by unitholders, merge their Multi Cap scheme with their Large Cap scheme or convert their Multi Cap scheme to another scheme category, for instance Large cum Mid Cap scheme.</div></blockquote></div><div>Under the SEBI definitions, "Large Cap" are the top 100 market caps, "MidCap" is a stock ranked 101-250, and SmallCap is everything else. In the 2017 Circular, SEBI mandated The Association of Mutual Funds in India to maintain a list to be published twice a year, defining the category of stocks. The list is published <a href="https://www.amfiindia.com/research-information/other-data/categorization-of-stocks" target="_blank" rel="noopener">here</a>. The most recent list is <a href="https://www.amfiindia.com/Themes/Theme1/downloads/Average%20Market%20Capitalization%20of%20Listed%20Companies%20during%20Jan%20-%20Jun%202020_Final.pdf" target="_blank" rel="noopener">here</a> (and the AMFI spreadsheet is attached below). The deadline is one month after the next category release.</div><div></div><div>The news shows media and mutual fund managers in a huff. It is easy to understand why. In many cases this will require them to go buy the stuff the don't have, and sell the stuff they do have. </div><div></div><div>But it will be complicated. Many Multi Cap funds use the NSE 500 as benchmark. The NSE 500 has an 81% allocation to Large Caps, 14% to MidCaps, and ~6% to Small Caps. </div><div></div><div>As <a href="https://www.moneycontrol.com/news/business/personal-finance/mutual-funds-set-to-approach-sebi-with-a-range-of-options-5830601.html" target="_blank" rel="noopener">reported</a> by Moneycontrol.com, Mutual Fund representatives are set to meet SEBI to ask for more time, or for a new category (Flexicap?), or allowing relaunch of MultiCaps as thematic funds.</div>

On Friday, SEBI put out a Circular Regarding Asset Allocation of Multi Cap Schemes of Mutual Funds which specified that Indian Mutual Funds (or "Schemes") with a Multi Cap label would be required to put a minimum 25% of assets in each category of stock - Large Cap, Mid Cap, and Small Cap -pursuant to the 2017 SEBI circular (Categorization and Rationalization of Mutual Fund Schemes) which required that Schemes manage the assets "true to label." The new requirement necessitates equity weightings of at least 75% and beyond the minimum 25%, funds are free to allocate the excess as they wish (the old requirement from the 2017 circular was 65% total in equities and no restriction on market cap bias). SEBI has given funds four-plus months to complete this reshuffling of portfolios - until 31 January 2021.  On the 13th, SEBI issued a clarification noting:Some sections of media have reported various views on the circular and various conclusions in respect of the same are being drawn. SEBI would like to clarify that Mutual Funds have many options to meet with the requirements of the circular, based on the preference of their unitholders. Apart from rebalancing their portfolio in the Multi Cap schemes, they could inter-alia facilitate switch to other schemes by unitholders, merge their Multi Cap scheme with their Large Cap scheme or convert their Multi Cap scheme to another scheme category, for instance Large cum Mid Cap scheme.Under the SEBI definitions, "Large Cap" are the top 100 market caps, "MidCap" is a stock ranked 101-250, and SmallCap is everything else. In the 2017 Circular, SEBI mandated The Association of Mutual Funds in India to maintain a list to be published twice a year, defining the category of stocks. The list is published here. The most recent list is here (and the AMFI spreadsheet is attached below). The deadline is one month after the next category release.The news shows media and mutual fund managers in a huff. It is easy to understand why. In many cases this will require them to go buy the stuff the don't have, and sell the stuff they do have. But it will be complicated. Many Multi Cap funds use the NSE 500 as benchmark. The NSE 500 has an 81% allocation to Large Caps, 14% to MidCaps, and ~6% to Small Caps. As reported by Moneycontrol.com, Mutual Fund representatives are set to meet SEBI to ask for more time, or for a new category (Flexicap?), or allowing relaunch of MultiCaps as thematic funds.

New SEBI Rules on Multi-Cap Funds Adds Buying Pressure to Small-Mid Caps