Home >Companies >News >Reliance Capital to buy Goldman Sachs MF business in India

Reliance Capital Ltd’s asset management unit signed on Wednesday agreements to acquire the mutual fund business of Goldman Sachs Group Inc. in India for 243 crore (about $37.5 million) in an all-cash deal, marking the exit of yet another foreign fund manager from a market that has been witnessing increasing redemption, razor-thin margins and intense competition.

With the acquisition, Reliance Capital Asset Management Ltd (RCAM), the third largest fund house in India with assets under management (AUM) of 152,919 crore, will own 12 mutual fund schemes, including 10 exchange -traded funds (ETF) of one of the largest ETF providers in India—Goldman Sachs Asset Management (GSAM).

GSAM India has a total AUM of 7,132 crore, as on 30 September. This includes 2,172 crore of assets in the central public sector enterprises (CPSE) ETFs—the nation’s first mutual fund scheme aimed at helping the government divest a part of its stake in state-run companies.

The deal will make RCAM the exclusive fund manager for the government’s CPSE ETFs. Earlier this month, Japan’s Nippon Life Insurance Co. raised its stake in RCAM from 35% to 49%.

The boards of both the firms have already approved the deal, expected to be completed by end of this fiscal year, subject to regulatory approvals, said an RCAM statement. As part of the deal, RCAM will extend employment offers to all GSAM India employees dedicated to supporting the ETF business.

“This acquisition by RCAM is an important first step in our overall strategy to strengthen our businesses through selective inorganic growth. GSAM India has a strong bouquet of schemes and a talented team. We are confident that together they will complement and enhance RCAM’s overall offerings to our investors," said Sam Ghosh,executive director and group chief executive, Reliance Capital.

Sundeep Sikka, president and chief executive officer at RCAM, said that the transaction will add over half a percent to its market share, and the company would be willing to consider more such acquisitions to strengthen its portfolio. “Effectively, the valuation comes to around 3%. The way you have to see, this is one of the first deals which has happened in the country, talking of ETFs and passive fund management," said Sikka in a phone interview.

However, some felt the deal is an expensive one. “This is a unique case. Goldman Sachs was a tired fund house. ETF has been a non-starter business in India," said Dhirendra Kumar, chief executive, Value Research, a mutual fund analytics firm.

“One positive is that Reliance will be able to run it without any incremental cost. I think it is an expensive deal, because these assets are not very sticky assets, and not downright retail. It will not be great value for money," he added.

RCAM said its ETF schemes, and that of GSAM, will co-exist, but the latter will be rebranded as RCAM schemes.

Goldman Sachs exiting the India asset management business comes as no surprise. In the last one year, many buyers had approached GSAM to buy its ETF business, which came with its acquisition of ETF specialist Benchmark Asset Management Co. in 2011. At the time, Benchmark was overseeing 2,935 crore in assets.

GSAM had 6,894.56 crore in AUMs under its ETF schemes, as of 30 September, according to data from Value Research.

It ranks first in the space while RCAM ranks third with ETF AUMs at 1,846.51 crore.

The margins from the ETF business are higher compared to blended yields of other businesses, said Sikka of RCAM.

“It all depends on the market dynamics," he said when asked about margins.

“Till now in India, there has been only one dominant player (in the ETF space). So, I think they have been charging roughly for equity schemes at around 100 basis points. For passive fund management, anything between 75 to 100 basis points is very high margins," said Sikka, adding that the blended yield of debt, equity, and gold schemes is around 70 basis points.

One basis point is one-hundredth of a percentage point.

For Goldman Sachs, however, sale of the asset management business does not mean reduced commitment to the Indian market. “GSAM will continue to deliver global asset management services to Indian clients and will remain a significant investor in Indian securities through regional and global managed GSAM funds. In the meantime, we remain committed to growing our investment banking and securities franchise in India," said Sonjoy Chatterjee, chairman at Goldman Sachs India, in a statement.

GSAM’s exit marks its realization that domestic firms are far better placed to grow in India because of their wider distribution networks, said a person familiar with the deal on condition of anonymity.

Others realised this earlier.

In June 2013, SBI Mutual Fund bought out Daiwa Mutual Fund, which was followed by HDFC Mutual Fund’s purchase of Morgan Stanley AMC in December that year. In 2014, Birla Sun Life Asset Management bought ING Investment Management India. Kotak Mahindra AMC bought PineBridge Mutual Fund the same year. “Most of the (foreign fund exits) are done. I don’t think this is a case of foreign vs Indian. The ones which have not been able to achieve the threshold scale, it’s a struggle for them," said Kumar.

Swaraj Singh Dhanjal contributed to this story.

Reliance Group companies have sued HT Media Ltd, Mint’s publisher, and nine others in the Bombay high court over a 2 October 2014 front-page story that they have disputed. HT Media is contesting the case.

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