Goldman Sachs Asset Management bought Benchmark Asset Management Co. (AMC) Ltd on Wednesday for a value of about Rs 130 crore. This is not the first instance of a fund house acquiring another; 14 such instances have taken place in the Rs 6.75 trillion Indian mutual fund (MF) industry so far.
Why mergers take place
Fund houses either merge or acquire others, such as the Goldman Sachs-Benchmark AMC deal, or international fund houses take a stake in existing AMCs, such as when Robeco acquired a 49% stake in Canbank AMC, the new entity being renamed as Canara Robeco Asset Management. Such acquisitions usually take place because one party wants to set shop, while the other wants to exit. Fund houses such as Pioneer ITI (that sold off its AMC business to Franklin Templeton in 2002) and Zurich AMC (sold to HDFC Asset Management Co. Ltd) wanted to exit the markets. Bad market conditions that incur losses can also force some players, such as Lotus Asset Management in 2008, to exit the business. Sometimes, standalone domestic companies that see their market share decreasing need strong partners to bring in more money and expertise, to be able to face competition better. After Robeco acquired a stake in Canbank AMC, the fund house improved its internal systems, hired new fund managers and performance has dramatically improved.
If an existing fund house acquires another existing fund house, it usually results in duplication of schemes. Such schemes are either merged or are realigned—one could be converted into an aggressive scheme and the other conservative. For instance, after HDFC AMC acquired Zurich AMC, they had two balanced funds. So the one that came from Zurich was rechristened as an aggressive balance fund and the one that HDFC AMC already had with itself became a conservative option.
As per rules laid down by the capital market regulator, the Securities and Exchange Board of India (Sebi), an exit option needs to be given to existing investors of schemes whose fundamental attribute, such as scheme objective, gets changed. Even if no fundamental attribute gets changed, exit option needs to be given when the trust or investment manager changes or even fees and expenses. Any other change apart from these, which ‘affects the interest of the shareholder’, warrants an exit option, as per Sebi rules.