Securities and Exchange Board of India (SEBI) has reportedly conducted search and seizure operations on Sandeep Tandon-owned quant Mutual Fund (MF), suspecting front-running activities,
says a report from Moneycontrol. The reports claims that the operations were carried out at two locations—Mumbai and Hyderabad—with the latter being a suspected beneficial ownership connection.
The report suggests that the case relates to front-running, with alleged profits from the operations estimated at close to Rs20 crore. However, the exact nature of the allegations and whether the management is complicit remains unclear.
quant MF, founded by Mr Tandon, is the fastest-growing MF in India, with assets skyrocketing from around Rs100 crore in 2019 to nearly Rs90,000 crore currently. The fund house received its MF licence from SEBI in 2017 and has seen remarkable growth, crossing Rs50,000 crore in assets in January 2024 with a portfolio of 26 schemes and 5.4mn (million) folios, which has almost doubled in the past five months.
The fund house's performance has been exceptional, particularly its small-cap scheme's, which manages over Rs20,000 crore and has been the top-performing scheme over the past three and five-year periods. In May alone, 43% of total flows into the small-cap scheme category went into quant small-cap scheme. Interestingly, Mr Tandon takes home zero, his chief marketing officer takes home Rs84 lakh and fund managers (only a few and quite young) are paid only Rs15 lakh-Rs40 lakh pa (per annum).
While quant Mutual Fund initially did not respond to queries from Moneycontrol, it sent an email to investors confirming that they had received inquiries from SEBI. The Fund assured investors their commitment to cooperate fully with the regulator throughout any review process.
Source: Message from quant Mutual Fund
Front-running is an illegal practice where fund managers, dealers, or brokers, aware of upcoming large trades, place their orders first to profit when the large order is executed and moves the stock price. Such transactions are often difficult to trace as they are typically conducted through trading accounts not in the perpetrators' names.
SEBI has been intensifying its efforts to eliminate front-running in the mutual fund industry, increasing its search and seizure operations to gather crucial evidence in complex cases. The regulator's aggressive stance is aimed at maintaining the integrity of the financial markets and protecting investor interests, the report says.
This investigation into quant Mutual Fund comes as part of SEBI's ongoing crackdown on unethical practices in the mutual fund industry. Earlier, the regulator had barred Viresh Joshi, a fund manager at Axis Mutual Fund, and 20 related entities in a front-running case, identifying Rs30.55 crore as ill-gotten gains.
As the investigation unfolds, the MF industry and investors alike will be closely watching the outcome, which could have significant implications for fund management practices and regulatory oversight in India's rapidly growing MF sector.
