Mumbai: US-based asset management firm T Rowe Price Global Investment Services Ltd may increase its stake to above 26% in India’s fourth largest mutual fund house UTI Asset Management Co. Ltd (UTI AMC), which manages assets worth Rs78,203 crore.
“We may increase our stake given the right conditions going forward,” Edward C. Bernard, vice-chairman, T Rowe Price Group Inc., said on the sidelines of a press conference in Mumbai on Wednesday to announce the strategic partnership with UTI AMC through the purchase of a 26% stake.
Last November, T Rowe Price had agreed to buy the stake in UTI AMC for nearly $140 million (around Rs652 crore then), which valued the country’s oldest fund house at around Rs2,500 crore—or about 3.2% of its average assets under management at the end of October.
Adding value: UTI AMC managing director U.K. Sinha. Ashesh Shah / Mint
T Rowe Price, which manages assets worth $366.2 billion, picked up a 6.5% stake from each of the four equal shareholders of UTI AMC—State Bank of India, Life Insurance Corp. of India, Punjab National Bank and Bank of Baroda.
These shareholders will now have an 18.5% stake each, while T Rowe Price is now the largest shareholder in UTI AMC, and will have proportionate representation on the board. It also has room to increase its shareholding as all four entities have their own mutual fund businesses that could potentially lead to conflict of interest.
In a November interview with Mint, UTI AMC chairman and managing director U.K. Sinha said T Rowe could also help it manage the portfolio of its $50 million offshore fund, UTI India Offshore Fund.
“Similarly, we also have a strong $30 million Shariah fund portfolio, where T Rowe Price will be able to help,” he said. “Essentially, this tie-up will give us a business synergy. Secondly, T Rowe Price also has a strong technology and research team globally and we will benefit from this.”
While retail investors usually park money in long term equity-oriented funds, banks and companies invest in liquid funds that are typically short term and that currently offer returns in the range of 4-4.75%.
In order to encourage retail participation in the fund industry, SBI chairman O.P. Bhatt said on Wednesday the bank was trying to “bring out a synergy to leverage the branch network of SBI for distributing mutual fund products across the country.” He was speaking at the T Rowe Price-UTI press conference.
T Rowe Price’s stake purchcase comes at a time when many foreign fund houses are looking to enter the Indian fund industry directly.
Officials at T Rowe Price said this was part of the company’s larger strategy in South-East Asian markets, as the fund house had confined most of its operations to the US so far.
“We are also looking at China, but we are likely to follow the same strategy of entering through a stake purchase. This gives us a quicker and easier entry,” said Fleming Madsen, head of Asia-Pacific at T Rowe.
Following a 2001 crisis triggered by its assured return US-64 scheme, the government broke up UTI into UTI AMC and specified undertaking of UTI.