The latest loan scam involving listed companies, including Money Matters Financial and LIC Housing Finance, is a grim reminder that mere presence of big investors in a stock is no guarantee of the quality of company management.

Money Matters, the company which allegedly facilitated shady corporate loans, raised Rs 445 crore through qualified institutional placement (QIP) from global investors such as Morgan Stanley, Wellington, Fidelity and GMO, who were allotted 71 lakh shares at a price of Rs 625.25 just a month ago.

These investors cumulatively put in about 60 per cent of the QIP investment.

At Wednesday’s closing price (assuming they haven’t exited) of Rs 531.20 on the BSE, these foreign investors have faced 15 per cent erosion in their one-month-old investment.

According to data with mutual fund tracker ValueResearch, Sundaram Mutual Fund, through various schemes (select midcap, growth and financial services), held shares worth over Rs 35 crore in Money Matters as on October 31.

“For institutions, the propensity and frequency of making mistakes is not as high as retail investors. When a large investor is already holding a stock, it looks attractive. It is called institutional imperative, which basically signifies that if a large investor backs an issue or a security, others take comfort from the same even if it is a mistake,” said Prakash Diwan, head of institutional business at Networth Stock Broking.

In case of LIC Housing Finance, whose chief executive was arrested by CBI on Wednesday, the company counts General Insurance Corporation of India, Morgan Stanley Mauritius Company, Taib Securities Mauritius, New India Assurance Company and Orient Global Cinnamon Capital among its key investors as per the latest shareholding pattern.

In fact only in the last week of October, 50-year-old financial services group Fidelity Investments acquired fresh shares (around 4 lakh) in the LIC-promoted company, taking its holding to more than 5 per cent.

According to available data, at least 20 Indian equity fund schemes held more than 1 per cent of net assets in LIC Housing Finance.