Mumbai: LIC Mutual Fund Asset Management Co. Ltd, or LIC MF, promoted by India’s insurance behemoth Life Insurance Corp. of India, is looking for a strategic partnership with an overseas financial services firm.
A person familiar with the development said the proposed strategic partner could be the Japan-based Nomura Group.
A senior LIC executive, who does not want to be identified, said the 12th largest asset management firm has received proposals from “various players for a strategic partnership” but declined to elaborate.
In an email response to Mint, Toshio Toyama, regional head of corporate communications at Nomura Asia Holding NV, said, “The company does not comment on any market rumour or speculation”.
The Nomura Group is one of the largest financial services players in Japan with a presence in asset management and investment banking across 30 countries. Its asset management arm was managing 27,912 trillion yen (Rs10,886 trillion today) as on 31 December. It has been exploring the possibility of being present in the financial services sector in India for quite sometime now.
LIC MF is the only player in the public sector which does not have a foreign partner yet. In November 2004, SBI Funds Management Pvt. Ltd had divested 37% stake to Societe Generale Asset Management. Subsequently, last year Netherlands-based Robeco Group NV bought 49% stake in Canara Bank’s asset management company, Canara Investment Management Services Ltd, and the US-based Pioneer Investment Group re-entered India to pick up 51% stake in Bank of Baroda Asset Management Co. Ltd. The Pioneer Group had earlier partnered with the Kothari Group for its asset management firm but later sold the firm to Franklin Templeton AMC.
With assets worth Rs14,000 crore as on 31 March, LIC MF is the second largest among the public sector players. None of them is a listed entity. LIC MF and UTI MF are the two oldest players in the industry which were set up much before the private players came in 1994. Unit Trust of India, the old avatar of UTI MF, had set up shop in 1964 and LIC MF in 1989. While LIC MF has been looking for a startegic partner, UTI MF has been waiting to enter the capital market with its initial public offering.
There seems to be no end to the rush to get a slice of India’s fast growing asset management business even though in March alone, the industry’s total assets under management (AUM) declined by 6.62%— from Rs5.65 trillion in February to Rs5.27 trillion in March.
The erosion in AUM started in January when Sensex, the Bombay Stock Exchange’s benchmark index, started slipping after reaching its lifetime high of 21,206.77 on 10 January. Since then, Sensex has lost more than 23%. The index closed at 16,481.20 on Thursday.
Apart from about half a dozen players who have already got or are in the process of getting an approval from the capital market regulator, at least three new players are eyeing the business opportunity. This is because the operating margins as a percentage of average assets under management on running an asset management business in India at 0.32% is relatively higher than other markets, according to a study done by consultant McKinsey. The study, Indian Asset Management: Achieving Broad-based Growth, conducted in March, said the margins are higher in India compared with other markets such as the UK (0.12%) and the US (0.18%).
Among the prospective new entrants, the Essar group, a Mumbai-based diversified business conglomerate, is firming up plans to get into financial services business and asset management will be part of it.
An Essar spokesperson said, “Essar has been scanning the opportunities in this sector” but declined to comment on this, saying, “it is too premature (to comment).”
The Chennai-based Matrix Financial Services, a non-banking finance company, plans to set up a passive asset management company. Funds of a passive asset management firm track a stock market index but do not attempt to outperform the index. The company has appointed Ashutosh Bishnoi, the former head of business development at HSBC and UTI MF.
Also, Kishore Biyani-promoted Future Group and Italy-based Generali Group are in advanced stages of setting up an asset management business jointly. The two companies have recently started life and general insurance joint ventures—Future Generali India Life Insurance Co. Ltd and Future Generali India Insurance Co. Ltd.
Mirae Asset Global Investment Management India Pvt. Ltd, JPMorgan and AIG Global Investment Group are among the new entrants in the asset management business. Bharti AXA Investment Managers Pvt. Ltd has already got the regulator’s approval and it will launch funds in a few months.
There are 33 companies in the asset management space in India, managing Rs5.27 trillion as on 31 March. India is, in fact, one among very few countries, to witness very high growth rates in the past few years till January when Sensex started sliding on global cues. According to the McKinsey study, India’s asset management industry has shown 47% year-on-year growth between 2003 and 2007. Except for Russia and China, which grew at much faster pace than India, the growth of the asset management industry in the US, the UK and Brazil was much lower, said the report.
“Unlike insurance, which has a long gestation period and is highly capital intensive, the asset management business can break-even within first four-five years of operation. One needs to maintain an asset base of Rs12,000 crore for achieving a break-even in the business,” said Naveen Tahilyani, partner and co-leader of the financial institutions practice at McKinsey.
McKinsey’s report predicted that the total assets under management could grow at around 33% year-on-year from $92 billion in March 2007 to $350–$440 billion by 2012.
P.R. Sanjai contributed to this story.