Trends. A good deal for Reliance MF

With the buyout of Goldman Sachs’ onshore asset management business by Reliance Mutual Fund (MF), yet another foreign fund house has pulled the curtains down on its India business.

But for investors in Goldman Sachs funds, there is nothing to unduly worry about. Reliance MF is the third-largest player in India after HDFC MF and ICICI Prudential MF and the fund house will likely be looking to build on Goldman MF’s strength in Exchange Traded Funds (ETFs).

Reliance MF has paid ₹243 crore to acquire Goldman’s ₹7,132-crore fund business. In other words, Reliance MF has paid about 3.4 per cent of the asset size of Goldman Sachs MF to increase its asset base of ₹1,53,885 crore by about 4.6 per cent. Coming perhaps at a time when most mutual fund houses have seen copious inflows, the valuation seems to be at the lower end, compared to recent deals.

Of the other similar acquisitions that took place in the last two-three years, HDFC MF is said to have paid around ₹170 crore or about 5 per cent of the asset size of Morgan Stanley. L&T Finance is speculated to have paid an even higher 6.2 per cent of Fidelity’s assets.

While global exchanges such as the New York Stock Exchange and the Deutsche Borse can boast of over a thousand ETFs, the Indian ETF market remains nascent with the number of ETFs still in double digits. With greater interest beginning to come in from institutional investors, such as the Employees’ Provident Fund Organisation as also high net worth individuals, Reliance MF expects ETF investments to gain traction in the coming years.

Goldman Sachs MF operates about twelve schemes, of which 10 are ETFs. It has a strong presence in some segments that have so far seen enthusiastic participation in India, such as the CPSE ETF (in which it is the only player) and gold ETFs.

The CPSE ETF is its biggest scheme with ₹2,009 crore of assets under management. Goldman Sachs Gold ETF and Banking BeES fund are the other big funds with assets of ₹1,300-1,700 crore. While Reliance MF too has a gold ETF of ₹1,340 crore, its Banking ETF is much smaller, at about ₹311 crore. These two funds may likely be merged by Reliance MF.

Besides, with the exception of ICICI Pru SPIcE fund, GS Nifty BeES, GS Junior BeES, GS Bank BeES and GS Liquid BeES are the only other ETFs that can boast of a track record of 10 years or above. The first three are consistent top quartile performers within ETFs too.

Launched in November 2012, GS India Equity fund (benchmarked to the CNX 500 index) is the lone diversified equity fund with an asset size of ₹101 crore.

Considering Reliance MF’s good track record in active fund management, investors can look forward to sustained returns or a merger with better funds from the Reliance stable.

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