Anyone raising money from investors must be regulated

Companies, mutual funds, venture funds, portfolio managers. The number and variety of entities raising money from the Indian investor has mushroomed in recent years, but regulations haven't kept up. The Securities Exchange Board of India Chairman, Mr U.K. Sinha, says his objective is to fill this vacuum.Henceforth, all entities raising money from domestic investors will be registered, without any exceptions.

Systemic risk

Speaking to Business Line on a visit to Chennai, Mr Sinha explained that this need was brought home during the market crash of 2008. “We found in 2008 that large pools of (retail) money were collected and used to play the market without anybody having any idea even about its dimensions. There was no clarity on how much money was being collected under private pools.”

This is why SEBI has made its recent moves to tweak regulations for portfolio managers and alternative investment funds as well.

“Now we have decided that alternative investments such as private equity, venture capital or hedge fund — anyone collecting private pools of money from investors, should be registered and information should be disseminated. This is necessary from a systemic perspective.” The earlier venture capital regulations for instance, never mandated that such funds needed to be registered with SEBI.

Why has the minimum investment limit for portfolio managers (Rs 25 lakh) or private equity funds (Rs 1 crore) set so high?

The idea seems to be to keep uninformed retail investors away from such vehicles.

Explains Mr Sinha: “We want to make sure that the uninformed retail investor invests only in mutual funds, where regulations are water-tight. In fact, we are looking at a hierarchy of regulations, in terms of stringency. At one end, there are vehicles such as mutual funds where one can invest even Rs 100 or Rs 500.

“At the other extreme, entities such as private equity, venture funds cannot collect less than Rs 1 crore per investor. These will be subject to light-touch regulations.”

SEBI says that the final set of regulations on alternative investment funds will be ready shortly.

Asked about what the regulator is doing to develop the corporate bond market, Mr Sinha replied that the problem with the corporate bond market was one of demand and liquidity. These have been impacted by many factors, including regulations governing the institutions who hold bonds.

On the supply side though, SEBI is working on expanding the suite of products. “Hedging and risk management for instance, was available for ten-year bonds and T Bills, but we were told that such products are required for intermediate bonds with two-year terms. We are planning to do it.”

Source: http://www.thehindubusinessline.com/markets/stock-markets/article3394492.ece

SEBI sees no reason to remove entry load ban in mutual funds.

Mutual fund companies looking for a reprieve in the form of reintroduction of entry loads or other charges may be disappointed, as the stock market regulator does not appear to be looking at the option in the near term. Considering the growth in the equity mutual fund schemes in the country, there was no need to bring back the entry load, the Securities and Exchange Board of India (Sebi) hinted.

“In 2010-11, the net inflow in equity schemes of the mutual fund sector was down by about Rs 13,000 crore, while in 2011-12, the net inflow was higher by Rs 600-700 crore. This is an encouraging development considering that the number of mutual fund folios were down in 2011-12,” the Sebi chairman, UK Sinha, said, at a press conference here on Monday.

In 2009, Sebi banned the practice of charging entry loads on mutual fund products making the product pricing more transparent. Mutual fund companies have been asking for the reintroduction of the entry load that would make the business more viable and profitable.

Evading a direct reply on the demands by Association of Mutual Funds in India (Amfi), Sinha said, “When there has been an increase in inflows even after the number of folios have gone down, it will not be fair for Sebi to jump to conclusions.” Sebi had not received any representation from Amfi on the same, he added.

The spread of the mutual fund business has not been up to the expectation of the potential of the market and Sebi has started the process of consulting agencies and shareholders to enhance the reach of mutual funds in India, he informed. Based on the responses of various stakeholders, the capital market regulator would consider setting up a committee to develop mutual funds business in India.

Sebi, which is in discussion with the insurance regulator Irda (Insurance Regulatory and Development Authority) to frame the listing norms for general insurance companies, hopes that the regulation would be out very soon.

The regulator has issued licenses to 13 qualified depository participants (QDP) to bring in qualified foreign investors (QFI) to invest directly in Indian equity markets.

“The entities need license to canvass for business outside India and minimum assets of Rs 500 crore. We have given licenses for 13 QDP. When the funds would start coming in, is not known to me,” Sinha said.

Source: http://www.mydigitalfc.com/mutual-funds/sebi-sees-no-reason-remove-entry-load-ban-mutual-funds-154

Bajaj Finserv-Allianz eyes Quantum buyout

Bajaj Finserv and its insurance partner Allianz are looking to buy homegrown mutual fund Quantum, highlighting the consolidation trend in the mutual fund industry. The proposed deal would mark the entry of the Pune based financial services firm and the UK-based insurer into the highly fragmented and competitive industry marked by wafer-thin margins.

People familiar with the situation said the two companies are in advanced stages of talks to acquire the six-year-old fund house, with a direct-to-investor business model.

Typically, valuations in large deals are based on a percentage of total assets under management (AUM). But this would possibly be a bilateral deal with valuation based on a premium to the networth (of around Rs 20 crore), said an investment banker involved with past transactions in the mutual fund industry.

Source: http://timesofindia.indiatimes.com/business/india-business/Bajaj-Finserv-Allianz-eyes-Quantum-buyout/articleshow/13029155.cms

After a slew of low-valued deals after the Lehman crisis, the domestic mutual fund (MF) industry is once again seeing deals at good valuations. Despite, short-term hiccups, untapped opportunity in asset management business in India is attracting foreign players who are betting on the long-term potential.

After a slew of low-valued deals after the Lehman crisis, the domestic mutual fund (MF) industry is once again seeing deals at good valuations.

Despite, short-term hiccups, untapped opportunity in asset management business in India is attracting foreign players who are betting on the long-term potential.

At a time when the fund industry has been crying foul over regulatory tightening, bad market conditions and investors fleeing out, recent transactions are being done in the range of six to seven per cent of assets under management (AUM).

Japan’s Nippon picked up 26 per cent stake in Reliance AMC in January, offering a valuation of 6.64 per cent of the fund house’s AUM. Last week, Britain’s largest asset manager Schroders, bought 25 per cent stake in Axis AMC, broadly in-line with recent valuations.

Independent industry experts say the debt-equity mix is one of the main criterion for valuing a fund house. Dhirendra Kumar, chief executive officer of Value Research, says, “Apart from equity assets, profitability and distribution networks of fund houses are also being considered for arriving at valuations.”

For that matter, acquisition of Fidelity’s MF business in India by L&T AMC in March is also estimated to have happened at 6-6.5 per cent of AUM. This was mainly on account of the substantial equity assets Fidelity possessed. Compared with 2008-11, a stagnating period which saw deals valued between 1.5 and four per cent of assets, current valuations have move up. Industry experts had at that time blamed the entry load ban for lower valuations of Indian fund houses.

Since expense ratio for managing equity assets is high compared with debt, valuations tend to go up for deals involving higher equity assets.

According to Lester Gray, chief executive officer, Schroders (Asia Pacific), long-term prospects for the asset management industry in India are very positive. “We are not short-term optimistic that things are going to change immediately, but we do believe over the time India will become an important asset management market in the region,” he adds. He says bad times will change and when it happens, the growth opportunity will reassert itself. “And unless you have established a strong presence, you are not going to benefit by the next upswing in growth,” he says.

Since MFs as financial investment products have very less penetration, a strong distribution channel is the biggest factor for high valuations. Dhruva Chattterji, senior analyst at Morningstar India, notes, “If a fund house has readily available distribution network, it will end up getting a good valuation.”

This holds true. For instance, in case of the Nippon-Reliance deal, the foreign entity could leverage on Reliance AMC’s established distribution channel. Similarly, Schroders will get benefits from Axis Bank’s branches across the country. Distribution channel has gained importance as MFs still continue to be a push product.

Prior to these high-profile deals, Goldman Sachs had bought out Benchmark AMC at a valuation of 4.1 per cent of assets in 2011. Similarly, a deal between Bank of India and Axa Investment is estimated to have happened at around four per cent of assets. Back in 2009, L&T Finance bought out DBS Chola at a valuation of 1.55 per cent of assets, while Nomura had picked up stake in LIC Mutual Fund at around 2.5 per cent of assets.

Source: http://business-standard.com/india/news/foreign-players-see-value-in-indian-mutual-fund-industry/473342/

Rabobank puts Robeco up for sale, value EUR 1.5-2 bln-media

Dutch lender Rabobank plans to sell its fund management arm Robeco for between 1.5 and 2.0 billion euros as part of a reorganisation of its businesses, a Dutch newspaper reported on Friday citing unnamed sources.

Rabobank has appointed Deutsche Bank and JP Morgan as advisers on the sale, Het Financieele Dagblad reported.

Rabobank officials were not immediately available for comment.

Source: http://www.reuters.com/article/2012/04/27/rabobank-idUSWEA964520120427