Talk of foreign asset management companies exiting India gets louder

Our Bureau Mumbai | Updated on March 27, 2015 Published on March 27, 2015

Overseas MFs not able to find a foothold might be one reason

The mutual fund industry is abuzz with reports of foreign asset management companies (AMCs) exiting their business in India. According to sources, three prominent foreign AMCs are eager to sell, though the hunt for the right buyer and valuations are proving difficult.

The AMCs that are likely to sell are JP Morgan Asset Management (India) Pvt Ltd, Deutsche Asset Management (India) Pvt Ltd and Goldman Sachs. As of December 2014 JP Morgan Asset Management (India) had average assets under management of ₹14,124 crore, Deutsche Asset Management (India) ₹22,670 crore and Goldman Sachs Asset Management (India) ₹6,832 crore.

When contacted, all three AMCs declined to comment on market speculation.

The mutual fund industry in India is highly fragmented with nearly 45 AMCs, whose asset bases at the end of 2014 ranged from over ₹1.5 lakh crore (HDFC’s fund business) to as little as under ₹50 crore (Shriram AMC).

Not an easy task

In a market dominated by giant-sized fund houses with legacies in the banking or insurance business, foreign AMCs have found it hard to get a foothold. Add to this the costs of building a presence in the market, a competitive distribution network and the inability to grow beyond a certain size, they might decide that the costs of doing business — even in a good investment environment — would outdo its benefits. (Most foreign AMCs are below the ₹30,000-crore threshold, Franklin Templeton being the one exception.)

But selling a fund house is not easy either. According to Jimmy Patel, CEO, of Quantum Asset Management Company, “In such deals, the buyer also wants his pound of flesh. When you’re buying an AMC, you are basically buying the licence to operate. So the question is how difficult is it to just get a fresh licence as opposed to buying out someone else’s business.”

Which might explain why instead of actual acquisitions, the industry is rife with rumours only.

Earlier in the year, sources spoke of US-based asset manager WisdomTree Investments being in exclusive talks with Goldman Sachs’ AMC in India but no confirmations are forthcoming. Besides, industry experts believe WisdomTree, with its predominantly exchange-traded fund model, would be a rank outsider in the Indian business.

New domestic players

The market might see completely new domestic entrants too. The Mahindra Group is said to have completed due diligence to buy Mirae Asset Global Investments (AUM of ₹1,527 crore in December), but talks stagnated once the fund’s corpus started to grow.

Meanwhile, in January, the board of YES Bank passed a resolution to enter the AMC business.

Or, like in the past, these AMCs might sell to a bigger competitor. For instance, last year, Morgan Stanley sold its Indian AMC business to HDFC, PineBridge to Kotak and ING to Birla Sun Life.

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Published on March 27, 2015
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