Does your fund manager have skin in the game? On April 28, 2021, SEBI introduced a new rule. They mandated key employees of asset management companies i.e. mutual fund companies to invest about 20% of their salary in the schemes they run or oversee. They’ll have to tie it up for 3 years or for the duration of the scheme, whichever is shorter. Basically, it’s a diktat forcing fund managers and other key personnel to have their skin in the game. But what is skin in the game? It’s an idea propounded by many people, but none more so than the trader-philosopher-statistician Nassim Nicholas Taleb. To have skin in the game is to seek symmetry. If you get hurt, I get hurt. If you succeed, I succeed. When you apply this simple maxim to a business arrangement, it will likely be beneficial to both parties. If the rules are violated, it will likely benefit one party while leaving the other exposed. Look at all the examples around you. A pilot is likely to heed safety instructions if her own ...
Zomato and the Unit Economics Problem The Red Herring Prospectus is a strange document. The regulator mandates companies to list their prospectus in the hope that potential investors seeking to buy a company’s stock would have more clarity on the pitfalls of investing in the IPO. However, the document itself is dense and can often rival a company’s marketing brochure. Zomato’s prospectus, however, is pretty transparent for the most part. There’s some very useful information and potential investors seeking to participate in the IPO could get a lot out of it. That being said, we still need to look at some of the lofty claims made in the document with a healthy dose of scepticism. The most significant claim being that the company’s unit economics have now improved. That Zomato now makes more money on each order compared to the money they spend fulfilling that order. Unit Economics before Covid | Source: DRHP Unit Economics Post Covid | Source:DRHP This is all the more surprising con...