‘Managing a fund of over ₹23,600 crore AUM brings scale and responsibility': Harish Krishnan of ABSL AMC

In the world of mutual funds, consistency often trumps temporary outperformance. Harish Krishnan, co-CIO and head of equity at Aditya Birla Sun Life AMC, doesn’t chase headlines; he builds portfolios that can weather storms.

In an exclusive interview with Fortune India, he delves into the fund’s long-term vision, the idea behind 'best-of-breed' investing, and why short-term rankings fail to puzzle him much. Even as Aditya Birla SL Flexi Cap Fund trails peers like HDFC and Parag Parikh in recent years, Krishnan remains confident in his strategy—one rooted in discipline, patience, and the art of navigating cycles rather than reacting to them.

Edited excerpts: 

Why is Aditya Birla SL Flexi Cap Fund trailing behind top-performing peers like HDFC and Parag Parikh in terms of 5-year returns, despite having a similar long-term presence?

Top performers over five years often change from time to time. While HDFC and Parag Parikh Funds may currently be leading in terms of returns, our primary focus at Aditya Birla SL Flexi Cap Fund has always been to deliver a consistent and rewarding experience for our investors. Rather than chasing short-term rankings, our objective is to outperform the benchmark over the long term while managing downside risk effectively. Market leadership is cyclical; there will be periods when we lead and times when others do. What matters most to us is creating long-term value through disciplined investing, limiting drawdowns during challenging periods, and enabling wealth creation through compounding over time.

Does AUM impact good returns?

AUM is not the sole determinant of performance. That said, when the AUM becomes significantly large, it can introduce certain challenges, particularly in terms of flexibility to take meaningful positions in mid- and small-cap stocks. Managing a larger fund is like steering a cruise ship as opposed to a small sailboat. You may not be able to catch every wave perfectly, but with a clear direction and strong navigation, you can still reach your destination effectively.

At higher AUM levels, the key lies in identifying what opportunities align with the fund’s scale and where its strengths lie. It's about adapting the investment strategy to make the most of the size, without compromising on performance. So, while AUM brings both opportunities and constraints, it’s ultimately the quality of decision-making, discipline in execution, and clarity of investment philosophy that drive long-term returns and not AUM alone.

What are the core strategy and key strengths of the Aditya Birla SL Flexi Cap Fund? Has it remained consistent over time?

The core strategy of the Aditya Birla SL Flexi Cap Fund is built around a ‘best-of-breed’ investing approach. We look for companies that meet at least one of four key criteria: a) they need to be market leaders or large companies within that sector; b) they typically tend to grow their revenues faster than the sector, which means that they are gaining market share; c) they tend to have margin profiles higher than that of the sector average; and d) they tend to have return metrics, which is return on capital. Efficiencies that are higher than the sector average.

If any of these four things qualify, we classify those companies as 'best of breed'. The idea of best of breed investing is that every sector goes through some kind of cycle. No sector is always in an upcycle. In a down cycle, companies that gain market share are doing something right because it is incredibly tough to gain market share. These kinds of companies then really make the most of that increased market share, and that is what the market appreciates. Our primary focus is to buy good companies that are gaining market share and doing things differently within a sector. Persist with them during the down cycle and make the most in the upcycle.

I would say almost 77-80% of the fund is filled with this kind of best-of-breed companies, and the remainder of the funds are known companies that are more opportunistic or tactical. Whenever there are opportunities that come through or there can be sectoral views that get changed, we tend to navigate through them through these tactical opportunities. So roughly about 80% is strategic best of breed, and 20% would be more tactical.

Importantly, this strategic framework has remained consistent over time. While we adapt to changing market conditions, our core remains anchored in identifying and holding high-quality businesses with the potential to outperform across market cycles.

What are the major challenges the fund is currently facing in outperforming its peer group within the flexi-cap category?

One of the fundamental aspects of our strategy is investing in 'best-of-breed' companies. However, a key challenge in the flexi-cap category is that not all sectors perform in unison. Because our approach involves identifying leadership within sectors and staying invested through both up and down cycles, the strategy may at times lag when broader market sentiment favours sectors or stocks outside of this quality universe, especially during sharp market rallies driven by momentum or speculative themes. That said, our experience has shown that these best-of-breed companies tend to hold up better during market downturns and outperform when sector tailwinds return. While this requires a degree of patience, it helps deliver a smoother investment journey and long-term wealth creation.

Hence, while short-term peer comparisons may occasionally reflect some divergence, we remain confident that our disciplined focus on quality and fundamentals continues to add value over a full market cycle and that, ultimately, is what matters most for our investors.

With over ₹23,600 crore in AUM and a long track record, what is your approach to managing liquidity and ensuring alpha generation in large-cap vs mid/small-cap segments?

Managing a fund of over ₹23,600 crore brings scale and responsibility. One of our key focus areas is maintaining sufficient liquidity while continuing to deliver alpha across large-, mid-, and small-cap segments. Our alpha generation stems from the 'best-of-breed' approach. To quantify how different we are from the benchmark (NSE 500 in our case), we look at a metric called active share.

Our active share typically ranges between 55% and 65%, which means a significant portion of our portfolio is distinct from the index. This active share is driven primarily by our conviction in companies that may not always be in favour in the short term, but tend to outperform over full cycles, especially when sector tailwinds return. Importantly, this focus also helps manage liquidity. In large-cap names, we remain nimble by staying diversified and disciplined, while in mid- and small-caps, we are selective and size our positions carefully to avoid liquidity stress and ensure exit flexibility if needed.

Our long-term experience has shown that if you combine differentiated thinking, disciplined execution, and the patience to hold quality businesses through market cycles, alpha can be generated consistently, even at scale. Time and sector rotation do the heavy lifting, provided the core of the portfolio is built on strong fundamentals.

Any suggestions for investors?

My advice to investors is to keep things simple and stay focused on what truly matters. Over the past 20-25 years, this fund has navigated through a wide range of global and domestic disruptions, from nuclear sanctions and the dotcom bust to terrorist attacks, the global financial crisis, and, more recently, geopolitical tensions and macroeconomic shifts.

Despite these challenges, disciplined investors who stayed the course have been able to achieve meaningful wealth creation through the power of compounding. The key lies in controlling what’s within your reach: choosing a well-managed fund, allocating capital thoughtfully, and most importantly, giving your investments time to work.

A systematic investment plan can be especially effective in building long-term wealth, as it helps smooth out volatility and reduces the emotional impact of market noise. Rather than reacting to headlines or short-term events, it's far more productive to stay committed to a disciplined investment approach.

Over 5, 10, or 15 years, that discipline pays off, especially when your financial goals come closer to realisation. In our experience, time and patience are the most powerful allies an investor can have.