The increasing cost of acquiring assets due to a tight
regulatory environment and six years without any profits have forced one of the
biggest names in asset management to look for exit options in India.
Fidelity Investments is in talks to sell its domestic mutual
fund business in the country. Fidelity managed assets of Rs 8,800 crore as of
end-December 2011, according to data from the Association of Mutual Funds in
India, making it the 15th largest company in India’s competitive asset
management business.
Fidelity’s India fund management arm, launched in 2004,
circulated a ‘request for proposal’ to companies interested in buying the asset
last week, according to people familiar with the development.
When contacted, a Fidelity spokesperson said, “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.”
“India is probably the only country, where there is no entry
load. In other countries, even management fee is higher. As a global
organisation, Fidelity will look at the return on every dollar invested. If the
return on their dollar is better elsewhere, they will do that,” said a local
asset manager.
In FY11, Fidelity was the second largest loss-making fund
house after Axis Mutual Fund. It booked a loss of Rs 62.39 crore in FY11
against a loss of Rs 27.56 crore in the previous financial year. Recently,
Nippon Life had valued Reliance Mutual Fund at 6.6 per cent of its assets under
management.
Analysts say despite the losses, Fidelity has a good chance
of getting a similar or even better valuation of its assets, as 70 per cent of
its corpus is in equity funds. The flagship, Fidelity Equity Fund, managed Rs
3,370 crore as of December 2011. The Special Situations Fund managed Rs 795
crore. Fidelity India Value Fund and Fidelity Growth Fund are other major
equity schemes.
Though Fidelity has a decent bouquet of schemes in both debt
and equity, it has not convincingly crossed the Rs 10,000-crore mark of assets
under management, considered a ballpark breakeven point for the industry.
A sharp fall in the equity markets and recent regulatory
changes, such as the removal of the entry load, or a commission charged by a
mutual fund distributor for selling a product, have made the going difficult.
Many fund houses also booked heavy losses following the mark-to-market rules on
debt instruments in FY11.
The news has taken the industry by surprise, as only smaller
names were seen susceptible to exits. "If Fidelity ends up selling its
India business, it would be an indication of just how difficult it is to manage
money in India," said the chief marketing officer (CMO) of a leading fund
house.
The CMO of a mid-sized fund house said, "We cannot rule
out the possibility of more consolidation in the industry, given the cost
pressure and increasing competition over the past few years."
The company's average assets under management have fallen
slightly from Rs 9,100 crore at the beginning of last year, data showed, with
the country's benchmark stock market index posting a drop of nearly 25 per cent
in 2011. Lured by the long-term prospects of Asia's third largest economy,
overseas fund managers, such as the US-based T Rowe Price Group Inc and Nippon,
have been buying into Indian money managers. While T Rowe bought 26 per cent in
UTI MF last year, earlier this month, Nippon Life bought a similar stake in Reliance
Mutual Fund.
Dhruva Chatterji, senior analyst at Morningstar India, said,
"Fidelity was considered a very established player in India. If the story
turns out to be true (that Fidelity is on the block), it would be a worrying
signal for the industry."
Source: http://business-standard.com/india/news/fidelity-looks-at-india-amc-business-exit/463299/
Posts
