Franklin CEO Johnson, Indian Regulator Spar on Fund Rule

(Bloomberg) -- India’s capital markets regulator rebutted claims that tighter rules pushed Franklin Templeton into freezing six debt funds last month, and said the asset manager should focus on returning the $4.1 billion to investors.

The Securities and Exchange Board of India’s comments come after Franklin’s global Chief Executive Officer Jennifer Johnson on a post-earnings conference call said India’s new rules on investment in unlisted debt “orphaned” a third of their funds as these bonds could no longer be traded.

The new regulations were enforced after the collapse of a major infrastructure financier in September 2018, SEBI said in a statement Thursday. The rules were created by a committee that included representation from Franklin, according to the statement.

“Despite the regulations being clear, some mutual fund schemes seem to have chosen to have high concentrations of high risk, unlisted, opaque, bespoke, structured debt securities with low credit ratings and seem to have chosen not to rebalance their portfolios even during the almost 12 months available to them so far,” SEBI said.

“In the current scenario, Franklin Templeton should focus on returning the money of investors as soon as possible,” it added.

Credit risk funds, a category of debt product, saw net outflows of 192 billion rupees ($2.5 billion) in April, data from the Association of Mutual Funds in India released Friday show. Redemptions jumped from about 56 billion rupees in March after Franklin announced its freeze.

Franklin on Friday said it is committed to ensuring an orderly and equitable exit for all investors at the earliest possible time. It apologized to SEBI and said Johnson’s comments were only intended as general background, and were quoted “out of context by some media outlets in India.”

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