Cross-holding norms: Prem Watsa’s stakes in 2 fund houses under spotlight

Mumbai | Updated on March 19, 2019 Published on March 19, 2019

To avoid conflict of interest, SEBI capped single entity exposure to an AMC at 10% last year

The majority shareholding of ace investor Prem Watsa-owned Fairfax Financial and group companies in Quantum Mutual Fund and IIFL Mutual Fund has come under the spotlight with SEBI’s deadline for meeting cross-holding norms ending this month.

HWIC Asia, promoted by Fairfax Financial Holdings, owns 49.2 per cent in Quantum Advisors, which is the sponsor of Quantum Asset Management Company and Quantum Mutual Fund. Ajit Dayal holds 34.97 per cent and the rest is held by a group of employees.

Similarly, in IIFL Holdings two Prem Watsa companies — FIH Mauritius Investments (26.53 per cent) and HWIC Asia Fund (8.89 per cent) — hold 35.42 per cent stake, much higher than the promoters’ holding of 28.95 per cent.

IIFL Holdings, in turn, owns 56.42 per cent stake in IIFL Wealth Management, which is the sponsor of IIFL AMC and IIFL Mutual Fund. Ultimately, Prem Watsa companies are the owners of IIFL AMC.

Last March, SEBI had capped single entity exposure to an AMC at 10 per cent in order to avoid conflict of interest and to strengthen governance structure.

Prem Watsa did not respond to a BusinessLine questionnaire.

Speaking on condition of anonymity, an executive of a top mutual fund said besides cross-holding norms, Prem Watsa’s companies are in violation of SEBI regulations by holding majority stake in two similar businesses.

Financial market regulators usually do not allow one entity to have presence in two similar businesses, he added.

Over the years, Fairfax had built significant exposure in the asset management business. In FY15, it acquired stake in IIFL Holdings and increased it further to emerge as the single largest shareholder.

Net worth criteria

In FY17, it managed to pick up majority stake in Quantum Advisors from private equity firm Menlo Oak Venture at a significant premium of ₹31,972 a share and infused additional investment of ₹122 crore to help Quantum Mutual Fund meet the SEBI net worth criteria of ₹50 crore.

Interestingly, state-owned insurance behemoth LIC is in a similar situation after inheriting IDBI Mutual Fund through the acquisition of IDBI Bank. It now plans to merge IDBI Mutual Fund with LIC Mutual Fund to create a single asset management entity.

Published on March 19, 2019
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