It is perhaps an indication of the challenges that even established fund houses face in bringing in investors, especially in equity schemes. Why else would a fund house such as HDFC, with huge assets under management, want to acquire Morgan Stanley’s modest asset management business?

Welcome move? For an investor in Morgan Stanley’s funds, this may be a welcome move given that funds will be going into established and seasoned hands.

HDFC manages mammoth schemes with its Equity and Top 200 funds, each boasting of around Rs 10,000 crore in assets under management. This apart, the fund house manages several others with a size in excess of Rs 1,000 crore.

Given that attracting new investor money has been challenging, HDFC has paid a speculated Rs 170 crore to acquire Morgan Stanley’s fund business, whose size is Rs 3,290 crore.

In other words, it has paid nearly 5 per cent of the asset size of Morgan Stanley to increase its own base by a mere 3 per cent. When L&T Finance acquired Fidelity’s AMC operations in India, it paid a speculated 6.2 per cent of the latter’s asset size.

The premium may have been justified given that Fidelity managed a set of quality funds that were mostly top quartile performers.

Average performers Morgan Stanley had eight funds in operation, out of which only one was started 19 years ago - Morgan Stanley Growth - while the rest were introduced only in the last four-five years.

While the Morgan Stanley Growth fund is fairly large with Rs 1,243 crore assets under management, its track record has not been anything spectacular.

It has delivered an annual return of 17.8 per cent over the past five years, lower than that of the large- and mid-cap category to which it belongs, which delivered 18.3 per cent.

Morgan Stanley ACE Fund, the other equity scheme from the house, has had a much better run, delivering over 22 per cent in the same period.

Morgan Stanley’s debt segment has a slightly better record. Morgan Stanley Short Term and Morgan Stanley Liquid, launched in the last two-four years, are quality bond funds and have generated above-average returns.

But none of the funds from the asset management company are chartbusters across debt and equity categories. They can, at best, be trusted to better their benchmarks marginally and can be held as such.

As mentioned earlier, barring one, none of them has a long record of, say, 10 years or more, to see how they would deliver across market cycles.

Morgan Stanley Growth has delivered just 12 per cent annually since its launch in 1994. In comparison, HDFC Equity, which commenced operation in December 1994, has managed nearly 20 per cent returns annually.

Road ahead It remains to be seen if HDFC would operate Morgan Stanley’s schemes separately, or integrate them with any of its current schemes. Given that it operates equity schemes across large-, mid- and mutli-cap mandates and has a broad-ranging offering in the debt category as well, it is quite likely that Morgan Stanley’s schemes would be amalgamated with some of HDFC’s funds.

Investors who have invested in the funds and are sitting on pretty average returns can definitely retain their units and look for some impetus in delivering better returns from the house of HDFC.

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