Wednesday, February 22, 2012

Fidelity Mutual Fund in two minds over selloff; bidders confused

Bidders for the India business of Fidelity Mutual Fund are picking up confusing signals from the fund house. Fidelity's decision not to part with its equity fund management team and overseas advisory business has not gone well with many bidders, sources in merchant banking and mutual fund circles told ET.

Fidelity Mutual Fund, in its 'request for proposal' document, has stated it is keen to retain the equity fund management team headed by Alexander Treves. Fidelity Mutual will reach a final decision on its equity fund management team after taking into account the overall valuation of the deal, said a Fidelity insider.

What has added to the confusion is a recent mail from the Fidelity management to senior officials, talking about the possibility of a joint venture with an Indian bank. This comes barely a week after circulating the 'request for proposal' document among potential acquirers.

Sources said sections within the Fidelity management feel that it may be a wrong time to exit India with the local market just stepping into a bullish phase.

Bullish on Fund Mgmt Business

"The business review was conducted in November and December, when markets were not doing well at all. The turnaround in markets has taken top Fidelity officials by surprise. There's a feeling that Fidelity is selling its asset at the bottom of a market cycle," said an insider at Fidelity Mutual.

At the regular morning meetings in the Mumbai office, a few senior officials have expressed their desire to continue with the fund management business in India.

They are optimistic of making the fund house profitable in bullish market conditions.

Fidelity officials declined to give specific comments on the story. "Fidelity Worldwide Investment is conducting a strategic review of its onshore asset management business in India; as with strategic reviews all options are being covered. The review is underway and it is too preliminary to discuss any outcome," said a spokesperson at Fidelity Mutual.

Fidelity Mutual, with a high salary structure and accumulated losses of Rs 305 crore, is looking for a price of about 6.5% of its assets under management (AUM). The fund house has a net AUM of Rs 8,700 crore, of which Rs 5,000 crore are equity assets. "Fidelity is asking for a very high price... we've placed our bids at about 4%," said the CEO of domestic fund house. "Another concern is their reluctance to let the equity fund management team stay with the fund. The deal is not hot without the fund management team," said the person.

Till Friday, Fidelity had received bids from more than a dozen Indian and international institutions, including Invesco, Pramerica (Prudential in USA) and State Street Corp. The fund house is yet to begin the short-listing process.

"If the price is right, Fidelity may prefer an American buyer as it will smoothen the exit. Getting regulatory approvals will be easier if an American asset manager buys Fidelity India. Sebi too will like it if Fidelity finds 'an-equal weight buyer'," said another investment banker.

A few leading domestic fund houses, however, did not bid for Fidelity's assets as the acquirer, as part of the deal, has to give jobs to all members of the business management team, comprising marketing and sales personnel.

"Large Indian fund houses have full-sized business management teams; they do not have the space to accommodate Fidelity personnel," said another chief executive of a local fund house.


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