Mumbai: The asset management arm of Infrastructure Development Finance Co. Ltd(IDFC) is looking for a strategic foreign partner that will give it access to an overseas distribution network, enable it to build an international presence and tap investors abroad.
Discussions are under way with several potential overseas partners for IDFC Asset Management Co. Pvt. Ltd, IDFC executive director Vikram Limaye said in a phone interview.
“I don’t know in what shape and form the partnership will evolve, and there could be an arrangement of the partner taking a minority stake in the company,” he said.
IDFC Asset Management wants a foreign partner that will help it tap a share of the capital that flows into the Indian market, boosting its fee income and improving its margins.
“Domestic mutual funds do not have the international distribution, brand or relationships to intermediate international capital flows into the Indian markets from an investment management perspective,” Limaye said.
In January, Baltimore, US-based asset management firm T. Rowe Price Global Investment Services Ltd agreed to buy a 26% stake in UTI Asset Management Co. Pvt. Ltd for $140 million (around Rs655 crore today). At the price, UTI Asset Management was valued at around Rs2,500 crore.
At present, seven of the top 10 fund managers in India are joint ventures (JVs), with the local partners holding a controlling stake in each of them. Franklin Templeton Asset Management (India) Pvt. Ltd is the only 100% foreign-owned asset manager among the top 10.
Kotak Mahindra Asset Management Co. Ltd is the only one among the larger asset managers without a foreign partner.
Foreign joint venture partners help get significant overseas funds to manage for local ventures, said N. Prasad, an independent consultant and a former chief investment officer at Sundaram BNP Paribas Asset Management Pvt. Ltd.
“Though the fee is lower, it goes direct to the bottom line as there are no marketing costs for the JV. In contrast, though you get a higher fee on the local money, you end up spending a bulk of it in brand building and marketing activities,” he said.
IDFC Asset Management started operations by acquiring Standard Chartered Plc’s asset management business for Rs830 crore in March 2008. Standard Chartered had assets of Rs14,141 crore under management.
Joint ventures are mutually beneficial for foreign and local asset managers, said Sudeep K. Moitra, chief distribution officer of Anagram Stockbroking Ltd.
“While foreign players get a share of the growing Indian market, the local players get access to international management practices, fund management processes and control mechanisms,” Moitra added.
In the past two years, IDFC Asset Management has almost doubled its asset base. At the end of April, it managed in excess of Rs26,000 crore, making it the 10th largest asset manager in the country.
India has 38 asset management companies that handle a total Rs7.7trillion.
On Thursday, Pramerica Asset Managers Pvt. Ltd, a unit of US-based Prudential, said it received regulatory approval to start operations, becoming the 39th.
Reliance Capital Asset Management Ltd, HDFC Asset Management Co. Ltd and ICICI Prudential Asset Management Co. Ltd are the top three fund houses in India.
Mutual fund valuations peaked when Eton Park Capital Management paid 12.9% of assets for a 5% stake in Reliance Capital Asset Management in December 2007.
After the market decline of 2008, valuations have plunged.
In July, Nomura Asset Management Co. Ltd picked up a 35% stake in LIC Mutual Fund Asset Management Co. Ltd for 2.4% of total assets.
In September, the financial services unit of engineering firm Larsen and Toubro Ltd announced plans to buy DBS Cholamandalam Asset Management Ltd for Rs45 crore, valuing the firm at about 1.6% of its assets under management.
Profit margins of asset management companies have come under pressure. A ruling by the capital markets regulator, Securities and Exchange Board of India, had restrained fund houses from charging upfront commissions for mutual fund investments starting August.
A study by consultancy firm McKinsey and Co. said that asset management companies would see profit erosion in fiscal 2010 and 2011.
“The industry is likely to witness consolidation as smaller AMCs (asset management company) may not be able to accommodate the acute profit and loss stress,” the study added.