I once attended Santosh Kamath 's presentation years ago. He spoke brilliantly. It was easy to be convinced. After the talk i was alone eating dinner. Was thinking of what could go wrong. I started to slowly see the risks. A big IFA came over. Asked him. He just ticked me off.

The first thing that struck me - he was investing in debt with the clear intent of competing with equity. This meant he believed in riding through every storm. He had focus & balls of steel. But, his investors & IFA's were candy crush characters.

They were playing casually.

The crisis that hit this approach was not really related to investment management alone. It was an ecosystem issue. He attracted the wrong people into his ecosystem-- AMC sales managers, IFA's and investors were all lazy believers in what was very high conviction investing.

For a very long time, his model worked. It had given equity type long term returns in debt. Track record was marketable.

For someone selling debt showing past performance, this was easy to sell.

Lazy salesmen at his AMC and outside sold this story big without explaining.

My next thought - he was taking calculated risks and pricing his risks well.

Interestingly, the guy was doing a very decent job. He picked his risks well and set decent pricing to reward his investors adequately.

Importantly, he worked to create upside if he was right.

But a FM must know his team, customers and their responses to crisis situations. He must factor it into his strategy.

Here SK was not showing enough discretion. Just when he needed patient investor support , Advisory faith and AMC ability to mobilize money, all 3 let him down.

So what option did he have? He could have let rash redemptions hurt investors who stayed behind. He would have force sold his portfolio down like a margin call. He took the equitable call of a shutdown. It gave him time to recover money and return. He took that painful call.

What could have saved him? If the same Funds were in a bank backed AMC or had better salesforce, he could have battled on. Bank backed AMCs enjoy more margin of error. Commit far more errors. Getaway lightly. Standalone AMCs don't enjoy that luxury. Their margin of error is low.

To explain a risk product, you must try to understand it thoroughly. To be fair, SK did explain his investing clearly. He was transparent on the risks.

But, TER, sales incentives and commissions sedated the support system which never took manager's message to the end investor.

The bigger question. Where these guy trusting SK for his investing skills, risk taking, risk management or simply for returns?

I clearly saw it was all about return bias, recency bias and anchoring bias.

Few understood what he was doing. Their trust was driven by incentives.

So what next? Money will be recovered & returned in due course. Hopefully, #COVID crisis must not worsen.

Investors will avoid a postmortem of their failure to understand investments. IFA's will never talk of failure to set right expectations. FT sales won't introspect either.