Tuesday, February 21, 2012

Why are 8 firms bidding for loss-making Fidelity’s India assets?

Fidelity, one of the worlds largest fund managers in the world, has decided to exit India by selling of its assets.
What’s surprising is how many firms are scrambling to grab what’s up for sale.

According to an article in Mint, eight firms including Tata Asset Management, Pramerica Asset Managers, US financial firm State Street Corp, Mizuho Financial UFJ Financial Group Inc, and a joint venture of Ambit and Nikko are some of the companies interested in buying the assets of Fidelity’s Indian asset management arm, FIL Fund Management Pvt Ltd.

For a company that reported an accumulated loss of Rs 333 crore —the highest in the domestic mutual fund industry — that’s quite a long list of suitors. In 2011 alone, the company’s losses had more than doubled to Rs 62.39 crore from the previous year.

According to an article in MoneyLife, a fund needs at least Rs 10,000 crore in assets under management to just break even. Fidelity had never reached that figure, which is what exacerbated its losses. Fidelity had equity-related assets totalling Rs 6,183 crore and about Rs 2,696 crore in debt schemes at the end of December.

However, Moneylife blamed two Securities Exchange Board of India (SEBI) chairmen in particular for the fund’s failure. “The foolish regulations that killed all incentives to sell mutual funds started under former SEBI chairman CB Bhave’s tenure and has been taken to new depths…the current SEBI chairman UK Sinha,” it said.

SEBI’s decision to ban the entry load also had a dramatic impact on the profitability of the mutual fund industry as it hit distributor margins.

Given these various problems, why are so many firms interested in Fidelity’s assets then? It is because of the fund’s large equity exposure or more because some new foreign fund wants to enter India via this sale?  Lets hope they do their home work well or we may end up seeing another stake sale soon.

Source: http://www.firstpost.com/business/why-are-8-firms-bidding-for-loss-making-fidelitys-india-assets-215199.html

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