BackReliance Capital eyes Goldman India’s MF unit
Deal could strengthen R-Cap's foothold in the ETF business that is growing in popularity with local investors
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Mumbai: Reliance Capital Ltd’s (R-Cap) asset management unit has expressed interest to buy the funds management business of Goldman Sachs Group Inc. in India—a deal that could strengthen the nation’s third largest asset manager’s foothold in the exchange-traded funds (ETF) business that is growing in popularity with local investors, mirroring global trends.
Reliance Capital Asset Management Ltd is, however, yet to start formal talks with Goldman Sachs to acquire the business, according to three people familiar with the development.
“Strategically, Goldman Sachs will fit perfectly into Reliance AMC’s (asset management company) business expansion plans. There is a lot of synergy between the two AMCs if the deal happens. However, there is no formal talk on the deal yet," said Sundeep Sikka, chief executive of Reliance Capital Asset Management.
While ETFs as an investment vehicle have been consistently growing in popularity across the globe over the past decade, the ETF market in India is still relatively nascent. At the end of December, ETFs based on gold accounted for ₹ 7,188 crore, while other ETFs contributed ₹ 6,702 crore to India’s ₹ 11 trillion mutual funds industry, according to data compiled by Association of Mutual Funds in India (Amfi).
A Goldman Sachs spokesman in India declined to comment on the story.
Goldman Sachs Asset Management Co. (India) Ltd has ₹ 6,832.16 crore in assets under management (AUM), while Reliance Mutual Fund (MF) managed assets worth ₹ 1.26 trillion as of December end.
More importantly, Goldman Sachs MF, in India, manages 13 schemes, which include seven equity-oriented ETFs, one liquid ETF (GS Liquid BeES), one gold ETF, one international ETF, two equity schemes and an open-ended debt scheme. As much as 97% of Goldman Sachs’ MF assets are in ETFs.
Last year, Goldman Sachs’ local asset management unit was awarded the mandate by the central government to sell the Central Public Sector Enterprise ETF. The government for the first time sold a part of its stake in state-run companies through an ETF, raising ₹ 4,000 crore by selling shares in 10 state-controlled companies.
Apart from R-Cap, a few other fund management companies have also shown interest in the Indian assets of Goldman Sachs Asset Management, according to one of the three people cited above.
“Reliance MF is one of the AMCs which have shown interest to buy Goldman Sachs’ domestic mutual fund assets. There is no formal acquisition talks initiated yet. But if anyone offers an incredibly good price for Goldman Sachs’ mutual fund assets, the company may start thinking of a deal," the person said.
Interested parties may be willing to offer Goldman Sachs between ₹ 160 crore and ₹ 200 crore for its assets, according to the other two people cited above.
On 9 January, The Economic Times reported that Goldman Sachs is set to dump its Indian MF business and the firm is in talks with WisdomTree, a US-based ETF asset manager to do so.
The pace of consolidation in the local MF industry has picked up after the Securities and Exchange Board of India (Sebi) made it mandatory for AMCs to have a minimum net worth of ₹ 50 crore to continue operations in India. The decision, announced in February 2014, allowed firms a three-year period to reach the mandated net worth levels, but Sebi said that firms with a net worth of less than ₹ 50 crore would not be allowed to sell more than two schemes a year till they meet the higher net worth requirements.
Tighter compliance rules are prompting smaller firms to exit the industry. In a board note in December, Sebi mentioned that at least two AMCs have expressed their intention to either sell their MF assets or merge with bigger asset managers.
“The industry may be entering a consolidation phase because it has failed to grow the universe of MF investors meaningfully in the past decade. It has failed to change the risk perception of customers towards market-linked products," said Hemant Rustagi, chief executive of Wiseinvest Advisors Pvt. Ltd, an investment advisory and distribution services firm.
Rustagi said that smaller fund houses have found it tough to survive, adding that even when the market moves up, new money tends to flow into larger fund houses.
“The industry will stabilize and enable all sizes of AMCs to thrive only if the investor mindset about equity is changed. And that can happen in two ways—firstly, by consistently rewarding investors with good returns for the next few years, and secondly, by strengthening the industry with more serious distributors," Rustagi said.
Deals in the sector picked up in 2014.
In September 2014, PineBridge Mutual Fund sold its domestic MF schemes to Kotak Mahindra Asset Management Co. Ltd for an undisclosed sum. Earlier in 2014, Morgan Stanley sold its domestic MF business to HDFC AMC, while ING MF was acquired by Birla Sun Life AMC.
On 15 January, Mint reported that Yes Bank Ltd has initiated talks to buy the MF assets of Deutsche Mutual Fund.
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