In a chat with Radhakrishnan Chonat (RC), Director of AlphaStreet, Aashish Sommaiyaa, CEO, WhiteOak Capital Asset Management discusses about their recent acquisition of YES Asset Management and their future plans including investment approach, portfolio construction and distribution strategies.
RC: Good day everyone. Today we have a very special guest, Mr. Aashish Somaiyaa, who’s currently the CEO of White Oak Capital Asset Management, which is the erstwhile YES AMC. He has over 21 years of experience in the asset management industry. And previous to his current role, he has been the CEO and Managing Director of Motilal Oswal. And he also has worked at ICICI Prudential. He holds a — interestingly, he holds a Bachelor’s of Engineering in Polymer Science. And he has a management studies, Master’s in Finance from Narsee Monjee Institute of Mumbai. Aashish, welcome to our chit-chat.
Aashish Somaiyaa: Yeah. Hi. Thank you for having me. Thank you. It’s my pleasure,
RC: Aashish, so, let’s start off with the announcement that came last week, which I think you know, probably is the right time to talk about. You actually have acquired the erstwhile YES Asset Management Company and have rechristened it as White Oak Asset Management. So this is your entry to mutual fund industry, from PMS/AF provider. Can you briefly tell us about the thought process behind it and why you went through an acquisition instead of applying for a license directly?
Aashish Somaiyaa: So, you know, thought process is basically, straightforward that, you know, White Oak Capital actually was founded by my colleague, Prashant Khemka in June 2017. And before founding White Oak, Prashant used to be with Goldman Sachs for about 17 years. He was the Chief Investment Officer and Lead Portfolio Manager for their India equity as well as for the global emerging markets strategies. So after he founded, White Oak Capital, you know, for the first four to five years of our existence, we have been, you know, one of our group companies is an asset management company, registered with Monetary Authority of Singapore, based out of Singapore, of course.
And we also have a group company, which is an asset management company in Mauritius. And, of course, before this acquisition in India, we were always licensed as a portfolio manager and the investment manager to alternate investment funds. Of course, all of this is total of about $6 billion, which is invested into listed Indian equities. And my colleague, Prashant has a very interesting way of putting it that, you know, if you’re passionate about playing cricket, then there is no reason why you will not play all formats. So whether it is T20, One Day or Test match. Now, not exactly alluding to the speed or way of playing, but purely from our investment management perspective, if you want to target the wider base of Indian customers, you know, if you really want to provide your services to retail investors, then mutual fund is the format to go.
So that’s why we were always keen to, you know, set up an asset management company, which will offer mutual funds to retail customers. As far as going acquisition way versus, you know, applying for a license, I think, you know, if there is an asset management platform, which is available, and you qualify to buy that platform, it just makes your entry, you know, relatively I think, I mean, nothing is easy, just makes it relatively easier or faster. Because there are already, you know, regulatory approvals, the people, the platform in place. So I think it’s just about, you know, getting there in a relatively — nothing comes easy or fast, but it’s just more relatively quicker to get to market.
RC: Great. What are your thoughts? So, PMS/AF, these are all high net worth investors, right? Rs. 50 lakh, Rs. 1 crore. So there, I am, again, asking you, are they a little more discerning about the market’s upswings versus now that you are in proper mutual fund, you’re going to get small sips, starting from Rs. 500 up to Rs. 5000. So retail investors, probably perception about market ups and downs will be a little different. How are you going to address and what are your communication strategies to make sure that they stay the course and not just be there for a bull market or a bull run?
Aashish Somaiyaa: So I think, you know, look, broadly speaking, even if people are investing in relatively smaller tickets in a mutual fund, I don’t — so there’s nothing to say that people who are retail investors can withstand market shocks, you know, less better than people who are supposedly savvy high net worth investors. In fact, in my experience in both camps, there are both types of people. Because I’ve seen enough and more number of retail investors in my previous experiences, I’ve seen enough and more number of retail experience investors, who are reasonably diligent, reasonably disciplined, who go by the book, who follow all the inputs and the advice, and they remain invested irrespective of market related challenges.
On the other hand, I’ve also met and spoken to and dealt with HNIs, who redeemed at 12 Noon on 23rd, March 2020. So, both of those things, I have witnessed actually. And I think it’s just that, yes, but you know, that is more about examples. But on an average, on an average, one does expect that, you know, people who are high net worth investors have a larger corporate — corpus to invest. It’s just that maybe their ability to tolerate financial shocks, or maybe their ability to tolerate, you know, because potentially, the investment surplus might be of a higher magnitude. And, you know, they might be able to dispose off that surplus towards growth objectives. Hence, you assume that their ability to withstand shocks will be a bit more. That’s maybe on an average, but you know, I think there are all types of experiences that one has.
RC: Good insight. So, thanks to the pandemic, one of the good upshots, this, we have seen a huge uptick in terms of demat accounts being opened. I think — last I read, it’s about 30 million plus. So do you see this as a trend that’s going to continue? And are you uniquely positioned now as an MF, funhouse, to capture the coming generations, you know, who are looking — going to look away from, let’s say, the traditional Indian investment of gold real estate? What do you think were a couple of reasons for this trend? And, you know, what are your insights on what’s going to happen going forward?
Aashish Somaiyaa: So I would — my own sense is that COVID related disruption, you know, and there are three facets of the COVID related disruption. One facet is the fact that not only COVID, actually, because of demonetization itself. But there are two facets which are related to demonetization and their own. Like one facet is of, you know, structural decline in interest rates, you know, and very poor returns from all fixed income investment alternatives. And even in all small savings, bank deposit savings rate, everything if you see, demonetization was one floor. And then during COVID, it went even further lower. I think in COVID, is the first time we started hearing of savings rates at 2.5% and stuff. Right?
And I think demon was the first time we started hearing that one year FD rate can be 5%. You know, today, if I see the entire fixed deposit, you’d go, it just doesn’t go beyond 6.5%. You know, if it is senior citizen, then maybe a few basis points more, but basically, the FD list ends at 6.5%. It was not like that in the past. So that is one facet. Second facet is related to demon as well as COVID is the — you’re forced whether it’s a payment, like what happened with demon. Anybody and everybody had to be on a payment app was that what will you do, you know, there are not — you have no alternative, cash was not there. Right? Everybody had to bunk in money into the bank accounts and everybody had to be on some digital interface. And then COVID only accelerated. So structurally lower interest rates, high liquidity, you know, savings as well, and you’re forced towards digital production. These are both things.
The other important thing is that there was lot of noise about the stock market really, in general, you know, after quickness, 40% fall itself attracts a lot of attention. And I think sequentially what happened interestingly was that the US market tanked first and then you know, all the NASDAQ and all the stuff. So, I think generally, social media penetration, media influence a lot of noise on the market, digital interface, a structural collapse in all alternative investment options. So confluence of multiple factors, that is, but you know, what happens? Some of these are one, year two, year five year microgreens. But then look at what is happening structurally in the background. Structurally in the background, like you know, there is a famous adage that habits change with generations.
So, structurally in the background, any which way, generationally, if you see, my mom’s generation, for instance, you know, I always do this thing. When I am talking to a large audience, I always ask them that if I say the word — if I say the word interest rate, what number comes to your mind, right? Our generation or my mom’s generation used to think that first it is boss 11% or something. Like I used to, if you’d asked me interest rate somehow in my head, it is like 9%. But, you know, and in offlate, you know, a very famous bank put plastered the whole world with 4% and 6% and stuff, right? So what does the word interest rate mean to you that number has changed dramatically in last 20 years. So the long trend is that people have to move towards capital markets. But within that there are a couple of things which are happened, which accelerated that. I think this is not going to reverse.
RC: Excellent. We have seen a slew of new age, AMCs come up with no indexing as the flavor very low costs, no funds. I’m not — I believe a lot of other PMS funds have also applied for an MF license. And there are entrenched players with no good distribution network, being a bank, plus an AMC has its own advantage, right? And you have been part of ICICI and other well known AMC. So you know that distribution bottleneck that any new MF faces. I know it’s too early, you’re just announced it last week, but what are the strategies that you plan to make sure that you know, it’s not restricted to the top tier cities or 30? Plus, what are your strategies to expand it beyond the 30 Plus cities.
Aashish Somaiyaa: Also, we will be world and new world in the sense that we will be physically present as well as we will obviously be part of the digital ecosystem. So, our game plan is to be actually in all the B30. You know, like say, for example, if you ask me next 24 to 36 months, you know, our sales head and my team can go better light, but 85 to 90 locations with over 110, 220 branches, plus presence in the whole — all digital interfaces. So our plan, our strategy is, and it’s not or so that is one.
On the — on your question, you know, if you asked me like, you know, you did mention that there are many questions in what you said, which is that there are some agencies which are banks with asset management license, and there are some which are fintechs, you know, like to have low cost passive kind of products. So, what is unique about White Oak is that, you know, it’s one of the few times probably the only time where a professional fund manager has got licensed to, you know, launch an asset management company and manage it. So, see, we are not — we are not a broking company, we are not FinTech, we are not insurance, we are not a bank, we are not industrial conglomerate, we are nothing.
It’s just I have been a professional CEO for last nine years. Prashant has been a professional portfolio manager pretty much for 22, 23, 24 years actually. So, we have no background other than, you know, professionals coming together. Of course, he’s the founder, he hired me, but basically we all are professionals, we all know their background. So everybody has their own narrative, right. If you are a large asset manager, you will say that brand and distribution is very important. If you are a FinTech guy, you will say you know, cost is important and people buy only digitally. If you are in my shoes, you will say it’s all about fund performance and fund management capability. I think there is none of these narratives is wrong, you know, it’s just that you will have your strength and you will have your competency and focus areas and you will lead with your competency.
RC: Nice way to put it. You will let the numbers and the performance do the talking than anything else. Excellent.
Aashish Somaiyaa: I’m saying that your — see, look, performance is also something which is a effort, which is the outcome of some inputs, like you know, consistency and quality of inputs, process research. So, you put all those inputs and you know, all sudden and we are in the equity market, whatever we may say we don’t really control outcomes, you know, we are dealing with variable outcomes. So, when you’re dealing with variable outcomes, the only thing you can control is consistency and quality of inputs. So, my claiming performance it’s not like we will get performance because we claim that we get performance, but everybody will have their own you know competencies and everybody will have something that they would like to lead with.
RC: You mentioned you’re a process-driven company. What is the unique investment framework or the approach that White Oak follows in picking individual stocks or just generally you know, if you can broadly tell us about your unique research or investment process or framework?
Aashish Somaiyaa: So you know, interestingly, you will find that most managers have a style, they lead with a particular style, you know, either it’s quality growth, value, contra. So people have certain style. Then, people have certain filters and screeners that these are the kind of companies before. Now, after 2022 long years, my learning in the industry is that when you have a style, right, that style helps you how to generate outperformance over the benchmark. But when you have a style, you also end up with a lot of factor tilts. It’s meaning that you know, if you are growth-oriented, see, look at this way, 2016, 2017, 2018, long period, growth oriented styles did well. 2019, 2020 only quality worked. 2021, there is a big rotation in the market if you’re a value kind of guy, you know value unlocking PSU, metals, infrastructure, that did well. Then 2016, 2017, small and mid caps did well. 2018 till mid 2020, it was completely out of fashion.
And then suddenly small and mid caps did well. So, you know, whether it is sectors, whether it is segment of market cap, or whether it is style, if you have a prefer — if you have preference of any kind, it exposes your portfolio to certain tilts. And market by nature, market by nature will rotate. When macros change, markets will rotate. So, styles go in and out of favor. So, if you are very, very style biased, you will have significant outperformance and it might be followed by underperformance. So one of the things at White Oak is that we pay a lot of attention to portfolio construction. So we run balanced portfolios. And we don’t start any conversation by saying we are value growth, we are basically open minded. That is first.
Second is that we look for three or four things. One is we look for high governance companies, no doubt about it. So we will not say that at a price, anything is good, or at a price, everything is good. No, that’s not the camp we are in, we are basically looking for high governance companies. Second thing is, we’ll always value companies, we have a proprietary or a trademark valuation framework called OpcoFinco framework. In short, basically, it is our own valuation framework whereby we look to identify companies, we generate free cash flow over and above cost of capital. We value everything on free cash flow basis, we value everything for excess return produced over and above cost of capital. And we’ll do a DCF for everything basically.
And the third thing which is very important for us is that we will look for companies which have a scalable long term opportunity. So, you know, if there are say, for example, there are many businesses where it is very difficult, you know, when you do a DCF, a lot of the value resides in the terminal value. So if you have no visibility or no future, you know, if you don’t have a sustainable or a scalable opportunity, then very difficult to visualize. So we’ll not buy something because it is undervalued right now, and it can give us a pop in the next one to two years, we look for scalable long term opportunity. So these are a few options.
And I’ll repeat these, sorry, these are the few parameters that we look for. And I’ll repeat what I said in the beginning, which is that, you know, when you listen to a lot of the discourse, it’s, it makes you feel that stock picking is everything. Of course stock picking is important. But you know, so stock picking is important for fund management, but fund management is not just stock picking. That’s why I started by saying that we pay a lot of attention to portfolio construction, because we would like to generate significant outperformance and consistently, not like go through swings of outperformance and underperformance.
RC: From investment style to your personal management style, at the beginning of our conversation, I noted something, you know, you are a polymer science engineer. I mean, very rarely have I come across anyone who has transitioned to managing finances. So over two decades, how did you start? And what has been your management style? And what have you picked up along your journey? A little bit about your management style and experience?
Aashish Somaiyaa: So I think — so first is you know, I do, mean, you know, it’s a very common conversation. But, you know, because there are many students, many youngsters also who listen to conversations. I was recently asked that, does it help being an engineer or, you know, I personally think that, you know, for example, Charlie Munger has this very interesting way of saying it that, you know, to be a good investor, you need to have a latticework of mental models, you know, like you need to have or, you know, you say that, you know, you need to have thinking in metaphors, for example, or, you know, thinking in terms of different frameworks. I think that has helped a lot. Because I can tell you one thing that, you know, a lot of financial concepts are easier explained, if you use the sciences.
You know, I’ll give a more more — I’ll begin with the most common refrain. If, you know, when the market tanks or a stock tanks, you know, when 100 becomes 50, it’s 50% down. And you must have seen it lot of people say that, you know, when it goes down, if 100 becomes 50, it’s 50% down, but for recovering now, you need 100% rise. And this scares the hell out of people. Now, that’s a psychological play. If you remove stock prices, and if you remove the index, because the — see even in stocks and the index, there is a price but there is ultimately earnings of companies that you’re talking. If you remove that, and you think of a spring which is storing kinetic energy, think of it logically that a 10-centimeter spring, if you compress it by 50%, it becomes 5-centimeters.
If you release it, it will recoil 100%, it will not recoil 50%. Right? So, that’s one way. Like, for example, if you ask me asset allocation, it’s closest to chemistry, you know, because different matters or different materials come together. But when they come together, they’re supposed to lose their individual properties. Like if you put gold in a multi asset portfolio, it’s not supposed to believe — behave like gold individually, it’s supposed to behave like the sum total portfolio. Right? So I think being an engineer has definitely helped me to think like, you know, when interest rates go down, bond prices go up. But long bonds go up much more, that’s closest to the principle of leverage actually.
So, I think I’m just giving you two, three examples, but I’ve written many articles on, you know, these metaphors, or, you know, thinking through a different framework. There’s a very interesting book by, written by a gentleman called Robert Hagstrom (sic) which is, you know, Investing: The Last Liberal Art. That whole book is about applying different sciences to investment management. You know, it’s very interesting, like companies, for example, like, you know, like evolution say, survival of the fittest, how does it apply to companies? Those kinds of things. So I think that has definitely helped. In terms of style, if you really ask me, it has been one big ride. Because, you know, when, I mean, for example, I have had a couple of times in my career, I’ve had a coach helping me, because, you know, I had many years back, I used to have very individualistic style of operating. And I don’t think that I have been like a natural breeder, really, I think I’ve been coached and groomed and you know, thoda left, left, thoda right, right, being elected in a certain manner.
RC: Very interesting, you know, how portfolio composition in terms of chemistry and the latticework of mental models. Beautifully explained. I think probably, this is going to be the highlight of our interview. Let’s talk a little bit about the last two years, the kind of paradigm shift we have seen and the structural changes. Aashish, pre-COVID and Aashish post-COVID, what has been your big learnings and transitions? And what are your key takeaways of this two years?
Aashish Somaiyaa: Yeah. So two or three things. You know, one is that I think as you grow older, and plus, of course, these experiences that one gets, you’ll — I think, in my — in the last three, four years, my biggest learning is all about being open minded. You know, like, for example, F. Scott Fitzgerald, who’s a very famous American philosopher, he said that “The test of a first-rate intelligence is to hold contrary views in your mind and still retain the ability to function.” I think that is one of the key traits. Look, like I’ll give you an example. I joined White Oak somewhere in August 2020. It used to be 25 to 26 employees. Okay? It is now 156 employees. And along the way, we have expanded our footprint domestically, we have acquired an asset management company, we have put a team in place to go ahead, right, we’re operating from a 3000 square feet office in Mumbai.
Now we have offices in 10 cities and rising rapidly like I said, whatever ambition is, I already told you. And from one 3000 square foot office in Mumbai, we now have 12,000 square feet. So, you know, we’ve hired, we have grown, we’ve changed our HR policies. White Oak, for example, is fully flexi working. So people can work from home, people can work from the closest we work or people can choose to come to office. So I think that it has been one major exercise in, you know, unlearning, relearning, calibrating, you know, taking one step or two steps at a time, but also not closing all your options. So, I think it has been a great experience. Also, you know, also interactions with clients, interactions with different stakeholders, I think there has been more depth, there has been more nuance. So very challenging time, but also very interesting time.
RC: Challenging, as well as interesting time. Thanks for that.
Aashish Somaiyaa: Yeah, I mean, if somebody told me that, can you — would you like to short circuit this whole process? I would say, no. I mean, you know, I was definitely great to have this experience, you know, great to have run a business during the bad times. And then you know, I moved here in August 2020, by then, bulk of the crisis was in some sense over, we had lived through the worst by then. But even in my previous role, you know, obviously, we were managing huge equity assets, you can see that people are panicking, you need to handholds with people, you need to keep talking to them. So it’s been a very busy two years, but then grateful for the experiences.
RC: This is something that I asked every time I meet a CEO. And I see that, you know, you have a bookshelf right behind you. And I was just trying to pick out any books that you know, I have read. Can you give us three top books that you would recommend?
Aashish Somaiyaa: Sure, yeah. I love reading books. In fact, this is just part of what you’re seeing. There’s like a — around me, there’s like a library. But one I already mentioned to you, you know, which really helped me a lot. But two or three more, like, for example, I love this book by Adam Morgan, which says, Eating The Big Fish. It’s very, very important for anybody who’s a business builder, you know, see, if you’re inheriting a legacy, that’s different. But I have been — I’m very grateful for my experiences that I’m associated with starting or helping create a business maybe second, third time in my career. So Adam Morgan’s book, which is about challenger brands, it’s called Eating The Big Fish, that I think is a big inspiration. Great Learning.
The second one is, you know, let’s be honest, you know, everybody goes to B school, but I don’t think everybody reads, everybody has read, you know, competitive strategy, competitive advantage. Michael Porter, you know, some 1500 pages. So we all know what he says. But I think there was a book written by one of his disciples, her name is Joan Magretta. And she wrote a book called Understanding Michael Porter. I think that is a fabulous book. Then there is a book on, you know, there’s a book called Quiet, which is about introverts. It’s written by Susan Cain. I love that book also. And then there is one more called Willful Blindness. Willful Blindness, I’m sorry, I’m somehow forgetting. I have read couple of books from the same author. There is another one called Uncharted, yeah, Margaret Heffernan. Willful Blindness. So I think there’s something — these are some books. Then I even love Adam Grant. I love all his books. Like I like Give and Take, I like Think Again. So yeah, these are some good. And I’m sure I’m missing a few. But yeah.
Aashish Somaiyaa: I love Simon Sinek also for example.
RC: Simon Sinek. Yes, of course. This has been one of the most interesting book list I have heard in recent interviews. You are a bookworm indeed. Just before — just before you close, so this is again something that I asked. What keeps you awake at night? And what gives you the motivation to wake up early in the morning? So two contrasting things. What is something that keeps you awake at night? And what is something that makes you look forward to –.
Aashish Somaiyaa: See, I think, in the last one and a half to two years, in the last one and a half to two years, specifically two years, you know, this whole pre-COVID, see, we have been in very tough environment since 2018. Right? In our industry, for example, a financial services entity like ILF is defaulting. And you know, all these structural challenges that came after 2018. Look, COVID is one but I don’t think most of us had even seen 4% GDP growth with practically zero corporate growth. And you know, we all are engaged with the stock market. But last seven to eight years has been very, very difficult. So, you know, building a business engaging with clients, being in the stock market in all these years. I think last few years have been challenging. But specifically in the last two years, a lot of my orientation has changed in the sense I think a lot about what my employees think about, what my colleagues and what the team thinks about how we are conducting ourselves. Previously, I was very — always very preoccupied only about, you know, stakeholders, customers, you know, the external environment and stuff.
But last one and a half to two years, I have — I think mostly to do with COVID. I think my — I’m more worried about what do employees think and what they are experiencing and how things are going for them. You know, because your ability, especially you know, when you are creating a new organization when so many people are coming together, there are so many constraints in terms of how you relate to people, how you communicate with them. You’re not like meeting everybody every day. So how are employees experiencing this whole thing, what their concerns are, how comfortable are they, how are they — how do they feel how they are being treated. You know, when you say something, how is it being received, you know, what is their mental makeup? Or in what frame of mind are they? Because so many of the contexts have changed. So, yeah, that’s top of mind for me. Otherwise, there’s not much that keeps me awake, really, honestly speaking, I’m not someone who loses sleep too easily. But yeah, this is what I’ve been just top of mind. This is what I’ve been thinking about.
RC: Excellent. Thanks Aashish for taking your time out and speaking with us. Some great insights, some great book recommendations which I’m sure next thing as soon as we are done with this interview, I’m going to buy all the books that I haven’t read already. And wishing you all the best with White Oak Asset Mutual Fund House. And looking forward to many more interviews with you.
Aashish Somaiyaa: Yeah, it’s my pleasure. Thank you for reaching out. Nice talking to you.
RC: Thank you.
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