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Photo: Abhijit Bhatlekar/Mint
Photo: Abhijit Bhatlekar/Mint

Reliance Capital eyes India assets of JP Morgan AMC

Talks for JP Morgan's Rs7,501-crore portfolio are in early stages, but Reliance Group has made the highest bid so far

Reliance Capital Asset Management Ltd, part of Anil Ambani’s Reliance Group, is in early talks to acquire the 7,501-crore portfolio of JP Morgan Asset Management India Pvt. Ltd as it seeks to close the gap with its two bigger rivals, said four people familiar with the discussions.

A transaction, if concluded, would make it the second purchase of a foreign fund manager’s portfolio by Reliance, which in October acquired Goldman Sachs Group Inc.’s mutual fund business in India.

With 1.57 trillion of assets under management as of 31 December, Reliance Capital Asset Management is India’s third largest asset management company (AMC), trailing only HDFC Mutual Fund ( 1.78 trillion) and ICICI Prudential Mutual Fund ( 1.72 trillion).

The talks with JP Morgan are in early stages, but Reliance has made the highest bid so far, said two of the four people cited in the first instance.

“We are open to an acquisition if there is a significant synergy in such a deal," said a top Reliance official who spoke on condition of anonymity because the talks are confidential. He isn’t among the people cited above.

A Reliance Capital spokesperson said: “Industry will be seeing lot more consolidation and RMF is open to further acquisitions similar to Goldman AMC. However, we would not like to comment specifically with regards JPM or any company."

“JP Morgan does not comment on media speculations," said a JP Morgan spokesperson.

Reliance MF is among at least two large and two mid-sized asset management companies (AMCs) that have evinced interest in JP Morgan’s India mutual fund business over the past three months, according to one of the four people cited above.

DHFL Pramerica Asset Managers Pvt. Ltd, Tata Asset Management Ltd and a large bank-controlled AMC are among the others who are keen to buy JP Morgan AMC’s India business, this person added.

A second person confirmed that DHFL Pramerica and Tata Asset Management had expressed interest.

On 4 March, the Economic Times reported that Tata Asset Management was in talks to buy out the assets of JP Morgan’s domestic mutual fund business.

A spokesperson for DHFL Pramerica declined comment.

“You would appreciate that as a practice, we do not comment on market speculation," said a Tata Asset Management spokesperson.

In October, Reliance acquired the mutual fund business of Goldman Sachs Group in India for 243 crore in an all-cash deal.

Deal talks with JP Morgan, have been complicated by recent troubles faced by two of the US-based AMC’s fixed income schemes in India.

In August last year, the fund had to restrict redemptions from the two schemes due to their exposure to debt securities of troubled Amtek Auto Ltd, which had been downgraded by rating agencies.

JP Morgan subsequently split those holdings into a separate unit and eventually sold off the Amtek bonds to repay investors.

“JP Morgan AMC does have some good performing schemes, but the valuation of the overall assets has to be carefully looked at, especially keeping in mind the crisis JPMorgan AMC faced in two of its fixed-income schemes recently," said the CEO of one of the AMCs that have held discussions to buy JP Morgan AMC’s business.

Just like Reliance Capital Asset Management, DHFL Pramerica MF has also been scouting for deals. In August last year, it bought out Deutsche Asset Management (India) Pvt. Ltd for 400 crore in a deal that moved the former’s ranking in the 44-firm asset management industry up by at least 10 notches in terms of assets under management.

According to Dhirendra Kumar, CEO of Value Research, a New-Delhi based MF analytics firm, if JP Morgan AMC looks to sell its mutual fund business, it would only be extending a trend that is now well established.

“In the past, several foreign AMCs in India have quit the MF business the moment they found it difficult to compete or make enough money. After the problems that occurred at JP Morgan AMC last year, the likelihood of the AMC’s exit has increased," Kumar said.

It won’t mean much for investors, he added.

“As it typically happens, there could be some redemptions in the industry when the buyer of JP Morgan AMC’s schemes makes the exit offer to investors as is required under the existing MF regulations."

In the mutual fund industry, acquisitions are valued on the basis of the asset mix of a fund house, network strength, long-term earnings prospects and profitability of the schemes sold.

Typically, the higher the amount of equity assets under management over the long term, the greater is the valuation.

“If one segregates the equity and fixed income assets of JP Morgan AMC and analyses their earnings for a three-year period, the valuation of a fund house like this can be a minimum of 2-2.5% of its assets," said Kumar of Value Research.

JP Morgan AMC does have a few top-rated schemes, according to Value Research. For instance, JP Morgan India Mid and Small Cap Fund with assets worth 539 crore is a four-star rated equity scheme in terms of its performance over a one-year period, says Value Research.

If the JP Morgan AMC deal goes through, it will mark the exit of the seventh foreign firm from India’s asset management space.

Market volatility, an increase in minimum net worth requirements to 50 crore from 10 crore and a rule requiring sponsors to invest their own money in all their open-ended schemes have put pressure on asset management companies in India’s 12.62 trillion mutual fund industry in recent years.

While Goldman Sachs and Deutsche AMC exited last year, in 2014, ING Investment Management (India) Pvt. Ltd sold its MF business to Birla Sun Life Asset Management Co. Ltd and Kotak Mahindra Asset Management Co. Ltd purchased the assets of PineBridge Investments Asset Management Co. Ltd. Earlier, Morgan Stanley Investment Management Co. Ltd had its schemes acquired by HDFC Asset Management Co. Ltd.

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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