In line with the realignment of Merrill Lynch and Co. Inc.’s asset management business globally, its Indian asset management outfit DSP Merrill Lynch Ltd will “transfer” its 40% ownership in DSP Merrill Lynch Fund Managers Ltd to the largest publicly traded US asset manager BlackRock Inc.
The DSP group, owned by Hemendra Kothari, will continue to hold 60% stake in the asset management firm.
After the necessary approvals from the capital market regulator, Securities and Exchange Board of India, the asset management will be renamed DSP BlackRock Investment Managers and the mutual fund will be renamed DSP BlackRock Mutual Fund.
Conservative philosophy: BlackRock Investment Managers chairman and CEO Laurence Fink says the firm had been concerned about the over-extension of credit since 2005 and the pricing of the subprime assets.
Fund management is the only business where the DSP group has retained a majority stake. In December 2005, the group had sold its 48% stake in DSP Merrill Lynch to Merrill Lynch Investment Managers, which now owns 90% of the company.
In September 2006, Merrill Lynch merged its investment management business with BlackRock.
As on 31 December, DSP Merrill Lynch Fund Managers managed assets worth Rs34,084 crore across mutual funds and portfolio management schemes.
BlackRock Investment Managers is one of the largest asset manager in the world, managing assets worth $1.3 trillion (Rs51.2 trillion).
The new partnership will help the fund house offer more variety of international investment products to its investors. “The exposure to India will allow us to become more global and help us in bringing our expertise in fixed income products, and technology to India,” said Laurence D. Fink, chairman and chief executive officer of BlackRock Investment Managers.
But it also brings along a conservative investment philosophy of the BlackRock Investment. At a time when the large US banks and investment houses are reeling under subprime crisis, BlackRock has emerged relatively unhurt.
In the fourth quarter of 2007, BlackRock’s mortgage-related losses were to the tune of $42 million. “We were concerned about the over-extension of credit since late 2005 and the pricing of the subprime assets. We were harmed for being conservative whereas others were bullish on it. We had extensive risk models and determined that one had to pay inadequate amount to own subprime or own risky credits,” said Fink, explaining how his firm managed to stay away from the crisis.
According to him, if the US economy continues to deteriorate and the mortgage market continues to worsen, the losses are going to come from other sources also. He pointed out that a few banks in the US have started announcing losses in credit cards and home equity loans. “We are not out of the woods yet,” he said. “Because we are seeing a continuation of credit crisis, Federal Reserve is being aggressive lowering short-term rates, trying to alleviate some of the crisis.”
Despite this, the US equity markets, Fink said, will rise to a higher level by the year-end. He doesn’t consider the emerging markets as a single group and would rather pick up each country investment on the basis of its risk and economic conditions.
Fink said India and Vietnam are attractive investment destinations as they did well last year. “But an investor has to be very daunting as the market dropped 20% in a short time. It just goes to show that it’s not a market which has a lot of depth; it can turn out to be volatile in a short period of time. So, one has to raise the risk profile in terms of investing in India. And if you cannot take this kind of volatility, then you should avoid it,” he said.