That was long overdue but it would be a herculean job at LIC
During the week, the government and SEBI once again raised the subject of a full-time CIO for LIC. Ironically, today, the investment decisions at the LIC still fall under the executive director of LIC
March 02, 2023
That was long overdue, but it would be a herculean job at LIC
During the week, the government and SEBI once again raised the subject of a full-time CIO for LIC. Ironically, today, the investment decisions at the LIC still fall under the executive director of LIC.
A huge AUM to boot
If you look at the AUM of the Indian mutual funds, the total corpus of Rs39.4 trillion is spread across around 40 AMCs with most AMCs having 2 separate CIOs for equity and debt. In contrast, LIC with over Rs41 trillion in AUM does not even have a full-fledged CIO. Such key decisions are taken by the ED, although he does have an expert committee to assist in such decision making. That does raise the question; why LIC does not have a full-fledged CIO till now?
Adani provides the impetus
In a sense, the Adani saga has provided the impetus for the appointment of CIO for LIC. The LIC had invested around Rs30,000 crore in Adani group stocks and the value of its Adani holdings had rallied to more than Rs80,000 crore. In the last 1 month since Hindenburg case broke out, the value of this portfolio is down to around Rs33,500 crore. Adani portfolio of LIC may still be in profit, but there is a lot of opportunity gain that LIC may have lost by not booking profits on time. According to SEBI, such issues can be better addressed if there is a full-time CIO. This may not be relevant, but it has surely rekindled the CIO debate.
Why getting a CIO is complex?
As much as this sounds like a very simple answer, getting a CIO for LIC will be much more complicated. There are several reasons for the same. Firstly, LIC has a fairly large portfolio of equity and debt holdings. So, obviously, LIC will need 2 separate CIOs for equity and debt. Secondly, mutual fund segment runs with more than 60 CIOs for AUM that is smaller than LIC. Obviously, the corpus of Rs41 trillion can’t be handled by just by few CIOs, but it will need a complete committee of CIOs to take a call on such critical matters. Also, it is not clear if the CIO would be able to operate in a situation where there are constant pulls and pressures on LIC.
Tweak the existing system
The current system followed by LIC is actually well thought through. The ED, who is normally an insider, is assisted by an investment committee. That is a much better idea than having a CIO. Most of the equity funds of private MFs struggle to beat the index even despite having professional CIOs. In comparison LIC has done amazingly well with its equity portfolio by taking a long term view. It is not like the CIO will address the problems of LIC. The challenge is to get more professional engagement in LIC and give more freedom. Also, less government intervention and demands would be a good idea. A CIO for LIC can only address part of the real problem.