Mutual fund dilemma: Can’t exist, can’t exit

The mutual fund industry has been seeing small stake sales by promoters, even as some asset management companies are said to be on the prowl for targets willing to exit the business completely. But, selling out completely is easier said than done.

Dhanalakshmi Bank, for one, is said to be eyeing an asset management company (AMC) where one of the two promoters is looking to exit.

“Current valuations don’t call for selling a stake,” said the chief executive officer of an AMC, requesting he not be named. “We can wait for one more year to get a better valuation.”

Meanwhile, most foreign players have shelved their plans for asset management business in India.

The global financial services industry, barely out of the global economic downturn, has had to suffer jolts on account of the uncertainty in the euro zone, among other things. The high level of volatility in the markets, in turn, has made the players risk averse.

To top it all, the ban on entry loads in mutual funds in India effective August 2009 has made profits harder to come by even for existing players.

Call it a double whammy.

“After what has happened in the global markets, the foreign companies are realigning their business models. They have put India plans on the backburner after what they are seeing in India with other AMCs. Profits are not easy to make anymore,” said a consultant who advises funds on India play.

Small wonder, Goldman Sachs Asset Management Company, which had received an approval from Securities and Exchange Board of India (Sebi) in September 2008 and had even filed for an India Money Market Fund with the regulator, is yet to start mutual fund operations.

Nikko Asset Management, Indiabulls Financial Services and Matrix

Financial had also got approvals from the market regulator in 2008 for launching asset management businesses in the country. Matrix Financial’s parent company Subhiksha was hit and hence unable to launch the AMC. Nikko Asset Management too is nowhere on the radar, say industry insiders.

Aegon, which has a life insurance venture and an earlier MF tie-up with Religare, is also re-visiting its mutual fund plans in India.

Vanguard is another. “Vanguard is primarily known for its expertise in quant funds globally. But in India that may not be the best way to go,” an industry official said.

Meanwhile, Sanlam Investment Managers, which is awaiting Sebi approval, has decided to enter into portfolio management services and will soon be raising money out of South Africa for its India-dedicated offshore fund.

But some birds are on the lookout, it is rumoured. “Foreign AMCs want to tie up with Indian companies that have strong distribution network and Indian companies want someone who can help them raise money abroad,” a senior industry official said.