Does a change in fund house ownership affect you?

There have so far been over two dozen ownership changes in India's mutual fund companies. Recently, DSP Group has announced its plan to buy BlackRock's stake in their JV, DSP BlackRock MF. After KBC Asset Management left Union AMC, Dai-ichi Life has bought 40% stake in Union AMC. If the shareholders of a mutual fund house change, can this bring serious changes to how your money is managed, DNA Money asks experts. Read on to know the answers.

Exit button

Entry of a new player is not as big a problem, as the exit. Should this worry investors? "When a foreign partner exits India, they are, most likely, losing money in the AMC and since they cannot bear it anymore they are throwing in the towel. Sometimes it is pressure in their home country to focus on their core business and exit smaller business segments like India," said Vikas Gupta, CEO and chief investment strategist, OmniScience Capital.

What is more important for investors is to focus on the performance of their particular scheme. "If the performance has been good then they need to watch if the fund manager is going to be moved out ," said Gupta.

However, some experts are of the opinion that there is always some loss when a renowned foreign MF partner leaves. "The research capabilities and managerial talent of the foreign partner are no longer available to the fund house. This can particularly impact areas like international funds which might feed into the foreign partner's own funds and rely on its expertise," said Neil Borate, personal finance analyst, RupeeIQ.

Investors must carefully evaluate the scenario and how it is unfolding before taking a decision. According to Himanshu Srivastava, senior research analyst, Morningstar investors need to understand what kind of a structure the foreign investment managers have.

"For instance, an exit of a foreign player may not be negative if it is in a joint venture with a strong and well established domestic player. On the other hand, investors have to be watchful if a foreign investment manager having an independent setup decides to wind up its business," explained Srivastava.

Value to the table

The bigger question is whether MF firm owners bring any value to the table. In theory, the idea was that the foreign MF partners would bring “fund management expertise”, said Gupta. The operations expertise of managing a large AMC in their home country and the compliance, back office, etc. is definitely some value that they bring. Once that is institutionalised it remains in the Indian AMC. But this could get lost unless the new Indian owners are really focused on maintaining the operational/compliance diligence.

"What really matters to investors is the investment management expertise. If the foreign MF is really strong in terms of a particular investment philosophy and process then that could be seen being institutionalised in the Indian MF. But there is a limit to that process. It will definitely lose the drift when the foreign MF exits," said Gupta.

Few partners may also bring in their strength and experience in risk management and compliance, thereby, adding to the robustness of the investment process. "If that has worked well for the joint venture, it is up to the domestic entity to maintain the same after the partnership comes to an end. This will also help in retaining investor confidence,” pointed out Srivastava.

Losing a foreign partner does hurt, but all MF advisors do not tell this to clients. "Foreign partners can bring global best practices and understanding of the broader global markets. Advisors do not draw attention to them because are reluctant to alarm clients, especially when the loss in question is difficult to quantify," said Borate.

Good shareholders

It is important to have good shareholders in the AMC/MF company where your money is managed. The field of investment management has two aspects: one is the business aspect, that is, raising as much assets or funds as possible with high revenues; the second is the professional aspect, that is, managing the assets to yield the highest returns with lowest risks.

"Some shareholders tend to focus too much on the business side and the performance of the fund could suffer. So, a good shareholder is someone who aims to first focus on the fiduciary and professional duty of delivering high risk-managed returns and secondly on ensuring that it is done in a profitable manner," said Gupta.

Large shareholders (especially those with board seats) can affect processes and fund manager appointments. They can also affect corporate governance, said Borate. "Often it is their brand which brings mutual fund investors to the fund in the first place. This makes their role quite important in fund house selection," he added.

Some foreign funds that exited India in the last three to four years include J P Morgan, Goldman Sachs, Deutsche Bank, Morgan Stanley, ING Investment Management and PineBridge.

WHEN SHOULD YOU WORRY?

• Don’t worry if foreign player is in joint venture with strong domestic partner
   
• Be watchful if foreign investment having independent set up decides to wind up business 
   
• If fund performance is good, watch out if fund manager is going to be moved out