Goldman Sachs scoops up Benchmark AMC

Goldman Sachs Asset Management on Wednesday announced the acquisition of Benchmark Asset Management Company, India’s largest exchange traded funds (ETF) player.

The company did not disclose financial details of the deal.
However, sources peg the value at around Rs130-150 crore, which is around 4.33-5% of Benchmark’s total assets under management (AUM) of around Rs3,000 crore.

“The transaction is expected to close later in the year, subject to regulatory approvals,” a press release issued by Goldman Sachs said.

The acquisition will help the US asset manager grow its operations in the Indian mutual funds space, which is getting quite competitive, by giving it ready resources including manpower and assets.

Goldman Sachs, which manages close to $840 billion of assets under its investment management business globally, had established its mutual fund arm in India in August 2008 but had not been able to launch any fund till date.

Benchmark AMC, started in 2001, has made a mark in the local MF industry. It is the leader in index, sectoral and gold ETFs with total assets under management (AUM) of over Rs2,800 crore in these ETFs. The deal provides Benchmark opportunity to grow its business further by utilising Goldman’s expertise and ability to get offshore foreign products in ETF space.

The entire team at Benchmark is likely to be retained even as Goldman Sachs AMC has its own research team of eight people in India who provide research for off-shore funds including Indian equities and BRIC equities.

Goldman Sachs Asset Management also intends to bring actively managed on-shore funds to India.

When contacted, a top official at Benchmark AMC said he could not part with details at this point.

The deal signals a revival in valuations for MFs, which had seen a drastic fall over the last two years due to a drop in profitability as the industry coped with slowdown in equity markets and regulatory changes.

“The deal highlights the fact that intrinsic valuations for mutual funds are coming back after seeing a dip in the last two years. It seems to be right way for them to actively start their MF operations in India as setting up or reviving operations can take anywhere from 2-4 years. Considering these factors, valuations seem to be alright” said the CEO of a domestic mutual fund, not willing to be quoted.

In the last two-and-a-half years, there have been four deals with Nomura Asset management picking up 30.5% stake in LIC MF at a value of 2.6% of the total AUM in July 2008; L&T and T Rowe Price buying over 100% and 26% stake in DBS Chola and UTI at valuations of 1.6% and 3.3%, respectively; and Shinsei Bank selling its AMC arm to Daiwa group in March 2010 for an undisclosed valuation.

Two earlier two deals, involving sale of stake in Reliance Mutual Fund and JM Financial, were struck at 13% and 8% of total AUM, respectively.

Industry experts say even at 5%, Goldman’s valuation for Benchmark AMC is reasonable considering its niche presence in ETFs and Goldman’s keenness to grow its MF operations.

“The valuations look expensive considering the fact that margins in ETFs are quite low (at around 30-75 basis points at a net level) and it would take them 10-15 years for breakeven. But then, they are getting a player which has created a new category in the MF space and is the leader in index ETFs,” said the CEO of a brokerage firm belonging to a big corporate house.

Benchmark AMC was set up by Rajan Mehta and Sanjiv Shah in 2001. It was the first AMC to conceptualise the idea of a Gold ETF and has also brought the first foreign ETF based on Hang Seng Index into Indian markets.