What Quant Mutual Fund Needs to Clarify About the SEBI Investigation

Quant Mutual Fund has yet to clarify whether it is under investigation for front-running. So far, they have only mentioned receiving inquiries from SEBI. They released an FAQ that doesn’t provide much information about the investigation. The first question in the FAQ is, “Has the SEBI enquiry concluded? : No, it is a regular ongoing process globally by regulators to collect data and analyze it.”

In this opinion piece, SEBI-registered flat fee-only financial advisor Abhishek Kumar explains why mutual fund unitholders deserve more transparency from Asset Management Companies (AMCs) and the regulator.

About the author: Abhishek is part of freefincal’s curated list of fee-only financial advisors and a member of Fee-Only India. He can be reached through his website, sahajmoney.com.

His journey has been previously featured: Fee-only Advisor Abhishek Kumar’s tap dancing to financial freedom.

“Sunlight is the best disinfectant.” – Justice Louis Brandeis, former associate of the US Supreme Court.

This is exactly what the public needs from Quant MF management as SEBI investigates it for suspected front-running. Greater transparency from Quant MF management about the ongoing investigation would help ease the concerns of unitholders and the public.

Join over 32,000 readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email! Email * 🔥Enjoy massive discounts on our robo-advisory tool & courses! 🔥 Subscribe to get posts via email!

So far, Quant MF management has mostly issued generic statements, advising unitholders not to be swayed by market narratives and miss out on investment opportunities. They also assured that unitholders have nothing to worry about, as the fund’s management will continue unaffected, and the schemes remain highly liquid.

When trust in the system is questioned, such generic statements only add to the uncertainty. Quant MF management should clearly explain the actual nature of the investigation to the public and unitholders.

When unitholders don’t receive transparency on such issues, they start leaving the fund. Additionally, SEBI, as the regulator, should provide more information to maintain trust in the system.

There is also speculation that the issue could be due to AMC employees being highly intelligent but not well-compensated compared to other AMCs, leading some to engage in front-running. However, if true, this reasoning does not justify such actions.

I want the management to say, ‘If there is any truth to the front-running allegations, then responsible employees and agents will face the full force of the law.’ Unitholders are minority owners, and protecting their trust should be the top priority of AMC management.

In my view, Warren Buffett is not the world’s greatest investor merely because he generated the best returns while running Buffett Partnership or Berkshire Hathaway. Many investors might have done or are doing better in generating returns. He is the greatest investor and steward of minority shareholders because of his best trait: Integrity.

For example, in 1990, there was a major controversy involving Salomon Brothers, a company where Berkshire Hathaway, with Warren Buffett as Chairman, held a 12% stake. Some employees of Salomon Brothers engaged in illegal bidding on US Treasury bonds, and the then-CEO of Salomon Brothers failed to act against the trader. The US Government banned the company from bidding in government bond auctions.

Warren Buffett stepped into the situation, and the US Government reversed the ban because of his integrity. Warren Buffett told the Salomon Brothers employees to instill the fear of strong action if their integrity was compromised: “Lose money for the firm, and I’ll be understanding. Lose a shred of reputation for the firm, and I’ll be ruthless.”

Disclaimer: Recommendations, suggestions, views, and opinions given by the author are their own. These do not represent the views of freefincal or its management.