Mutual Funds

Can sponsors take a long-term view?

AARATI KRISHNAN | Updated on December 10, 2011

Mutual fund houses in India often ask their investors to take a long-term view on their holdings. However, the firms that float mutual funds don't seem to be abiding by this advice.

Private sector mutual funds in India have been in existence for barely 15 years. And yet, of the 40-odd fund houses in operation today, just a handful  are still run by their original owners.

In fact, the sheer number of rebranding exercises that fund houses have gone through suggests that it has been quite a game of musical chairs.

Sporting new avatars

To start with, there are instances of fund sponsors calling it a day within a few years of entering the scene.

A deal last week saw Bank of India buying up a 51 per cent stake in Bharti Axa Investment Managers from its two joint promoters. Bharti Axa Mutual Fund started operations only in 2007.

ABN Amro Mutual Fund, among the later entrants to the Indian scene, has already undergone two changes in avatar in the last four years. In 2008, it was renamed as Fortis Mutual Fund following a global ‘integration' exercise.

In late 2010, Fortis transformed into BNP Paribas Mutual Fund. And BNP Paribas — the new sponsor — was at the time a co-sponsor of Sundaram BNP Paribas Mutual Fund and pulled out of that venture.

Foreign fund sponsors, in fact, seem to have been the most fickle lot. With the global credit crisis triggering an M&A spree among global financial services firms, the global level changes have had their impact on the Indian arm, which happened to be the sponsor of a mutual fund.

Barring a few international asset managers such as Franklin Templeton, Fidelity, HSBC and Morgan Stanley who have stayed the course, fund houses with foreign partners have witnessed a high degree of churn. Then there is the trend of public sector banks, which called it quits a few years ago, actively re-entering the space.

No consolidation

The surprising aspect of this trend of ownership changes is that it has not resulted from ‘consolidation' in the true sense of the word — the phenomenon of weaker players being snapped up by stronger ones. Many of the fund houses that have seen a change in owner/sponsor have, in fact, been the most successful and established players in the industry.

DSP BlackRock Mutual Fund, a steady performer, saw BlackRock Inc replace DSP Merrill Lynch as a sponsor. HDFC Mutual Fund as it stands today acquired its flagship schemes from the well-established Zurich Mutual Fund. Franklin Templeton made a head-start in India through its acquisition of the popular Kothari Pioneer funds.

What is the harm in such ownership changes? After all, investors do get an exit option each time there is a proposed ownership change, don't they?

The truth is despite being given the option, few investors make use of them. This suggests that investors are a patient lot, and are willing to give the new owner or manager a fighting chance.

It is firms that sponsor mutual funds which need to take the cue from their investors, to stay in the business for the long-term.

Published on December 10, 2011

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