Mumbai: At least eight firms, including Tata Asset Management Ltd, Pramerica Asset Managers Pvt. Ltd, US finance company State Street Corp., Mizuho Financial Group Inc., Mitsubishi UFJ Financial Group Inc. and a joint venture of Ambit and Nikko, are in the fray to acquire the assets of Fidelity’s Indian asset management arm FIL Fund Management Pvt. Ltd, according to two persons with direct knowledge of the development.
JPMorgan, financial adviser for Fidelity mutual fund, circulated the so-called request for proposal (RFP) to accept bids from prospective buyers. The deadline for submitting bids expired on Wednesday.
Despite an accumulated loss of Rs 333 crore, the highest in the domestic mutual fund industry, Fidelity is looking for 6.5-7% of its assets under management (AUM) as price. It has assets of around Rs 9,000 crore.
In 2011, its losses more than doubled to Rs 62.39 crore over the previous year.
Marie W. Cheung, spokeswoman for JPMorgan, declined comment.
The prospective suitors, too, did not comment.
“As a matter of policy, Tata Asset Management does not comment on speculative reports,” said a company spokesperson. The Tata firm managed assets worth Rs 21,473.3 crore at the end of December.
Lisa Villareal, vice-president (global communications) at Prudential Financial Inc., which uses the Pramerica brand name in India—it is not affiliated with the UK-based Prudential Plc—declined comment. Pramerica mutual fund managed assets worth Rs 2,084.41 crore at the end of December.
Alicia Curran, a spokeswoman from State Street, too, declined comment “on market rumour or speculation”.
Emails sent to Mizuho, Mitsubishi UFJ and Ambit-Nikko remained unanswered.
State Street, Mizuho and Mitsubishi UFJ are overseas asset managers and do not have a registered mutual fund business in India. Acquisition of Fidelity mutual fund’s assets will provide them an entry into the Indian market.
For Ambit-Nikko, the acquisition means a boost for the company’s plans in the mutual fund business.
India’s Ambit Holdings Pvt. Ltd and Japan’s Nikko Asset Management Co. Ltd announced in December a new joint venture to manage India-dedicated funds and offer advisory services.
According to Value Research, a New-Delhi based fund tracker, at the end of December, Fidelity managed assets worth at least Rs 6,184.61 crore in equity schemes and Rs 2,695.84 crore in debt schemes.
Though the valuation looks high, Fidelity may get its asking price given the high proportion of equity assets; typically, the higher the proportion of equity funds, the higher the valuation. Equity schemes earn more fees and commissions than debt schemes.
“In response to the RFP, JPMorgan has received bids in the range of Rs 450-500 crore,” said one of the persons with direct knowledge of the development. He asked not to be named as the acquisition process is in its early stage and finalizing a buyer could take several months.
Fund house acquisitions are valued on the basis of the asset mix, network strength, long-term earnings prospects and profitability.
There have been several acquisitions of Indian mutual funds with valuations ranging from 1.6% to 13% of AUM.
Recently, Reliance Capital Asset Management Ltd, the mutual fund arm of the Anil Ambani-controlled Reliance Group, announced a 26% stake sale to Japan’s Nippon Life Insurance Co. for Rs 1,450 crore.
The transaction values India’s second largest fund house at Rs 5,600 crore, or about 6% of its overall AUM.
In 2009, Japanese money manager Nomura Asset Management Co. Ltd picked up a 35% stake in LIC Mutual Fund Asset Management for Rs 3,080 crore, or 2.4% of the latter’s assets at the time.
In the same year, T Rowe Price Global Investment Services Ltd picked up a 26% stake in UTI Asset Management Co. Ltd for $142.4 million, valuing the latter at about 3.25% of its average AUM then.
In 2009, L&T Investment Management Ltd paid Rs 450 crore to buy out DBS Cholamandalam Asset Management—1.6% of the value of the latter’s assets.
Valuations of both Reliance and Fidelity are at the higher end of average valuations at which deals are consummated in the Indian mutual fund space. The 44-player industry, which has been grappling with dwindling sales and investor folios ever since a ban on entry loads (or commissions charged at the time an investor buys into the scheme) in August 2009, seems to have entered the much-awaited consolidation phase now.
Commenting on the Reliance-Nippon deal, Avinash Gupta, head (financial advisory) at Deloitte Touche Tohmatsu India Pvt. Ltd, had said: “Most of the segments in financial services in India are ripe for consolidation and the evolving regulatory framework facilitates the process.”
Of the 39 asset management companies that declared their earnings last year, 16 recorded a collective profit of around Rs 1,100 crore and 23 booked around Rs 550 crore loss.
Reliance Mutual Fund saw its profit rise almost 30% to Rs 236 crore and HDFC Asset Management Co. Ltd, the largest fund house by assets, saw its profit increase 16% to Rs 242 crore in fiscal year 2011.
anirudh.l@livemint.com