Agreed that at first sight, the optics of this incident appear bad for Marcellus. Especially as someone offering Portfolio Management Services geared towards trustworthiness and transparency.
Also, very bad timing as well, as their investments are known to be performing relatively poorer in the recent post-pandemic times, leading to lower customer/client confidence as it is.
Absolutely agreed!
However, this incident is consistent with Marcellus’ shtick that Indian companies are governed poorly. Any media reporting that Marcellus did not detect fraud in their own backyard is ignoring the fact that Marcellus did detect this fraud themselves, did not hide this (and hope to get away with it), but rather reported it to the authorities themselves.
Did Marcellus prevent this? Not in this instance. However, we cannot jump to the conclusion that there were no controls in place. Controls add friction, cost time, and cost money. The more stringent the controls, higher the costs (and opportunity costs). Thus, the optimal amount of fraud is our current financial systems is NOT zero. From what little we know so far, they appear to have had controls in place to detect, and they did.
Here's an hypothetical example...
Which is a financially better prudent approach?
A. Lose 1 Cr each year in costs (and opportunity costs) to prevent any discrepancy >10INR from occurring.
B. Lose 5 L each year to minimize discrepancies, and detect any discrepancy exceeding 1 Cr within a year, with a 25% chance of recovering the amount after detecting the discrepancy.
The biggest potential cost for Marcellus is losing the confidence of their investors and target audience who might have been considering investing with them. I say a “potential cost” and not a guaranteed cost (so far), as this incident and Marcellus’ behavior might or might not be seen in an overall bad light by the target audience that Marcellus pursues/attracts.
To put it simply, going by their tag-line…
At Marcellus, our Purpose is to make wealth creation simple and accessible
by being trustworthy and transparent capital allocators.
From this incident, they may lose some points on trustworthiness.
Whether that is offset/exceeded by the points they gain on transparency, remains to be seen.
All said and done, whether Marcellus’ clientele
- is astute enough to consider this the optimum cost of doing business
or
- is conservative enough to consider this a sub-optimal unacceptable setup
will soon be evident to us by keeping an eye on the details of
the PMS’ AUM, clients, and inflow/outflow of funds over the coming months.
Here a summary of the most recently available numbers from August 2025 for reference.
(Further details / break-up available in the link)
Source: SEBI - Portfolio Manager monthly Report.
(can search for “Marcellus Investment Managers Private Limited”.)
