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Exclusive | L&T Mutual Fund: GA-backed IIFL Wealth, HDFC AMC, Blackstone and DSP Group in the fray

The engineering to software conglomerate, which houses L&T Mutual Fund under listed arm L&T Finance, had put the mutual fund business on the block earlier in a renewed attempt to find a suitable buyer

April 30, 2020 / 07:03 AM IST
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The race for acquiring a majority stake in Larsen & Toubro’s (L&T) mutual fund business is headed for a bidding tussle between a clutch of bulge bracket private equity funds and strategic investors, sources told Moneycontrol. The engineering to software conglomerate, which houses L&T Mutual Fund under listed arm L&T Finance, had put the mutual fund business on the block earlier in a renewed attempt to find a suitable buyer.

Moneycontrol was the first to report in January 31 that L&T had revived plans to sell its mutual fund business and had appointed JP Morgan to advise on the transaction.

IIFL Wealth backed by private equity firm General Atlantic, HDFC AMC, Blackstone and veteran investment banker Hemendra Kothari-backed DSP Group are among the bidders who are believed to be keen on this asset,” a source said.

A second source said this is a ‘control’ deal and part of L&T’s non-core asset monetisation drive. “The initial bids are likely to be in the Rs 4,000-5,000 crore range. This is an equity-oriented asset, which makes it attractive.”

IIFL Wealth has had General Atlantic as an investor since 2015 and the combine is keen to expand in the mutual fund space and they can extract substantial synergies from this deal, a third source said.

All the three people Moneycontrol spoke to did not want to be named.

HDFC AMC can derive significant cost synergies as well while Blackstone has been on the lookout for control deals, said the third source, elaborating on the deal rationale for the suitors. The fourth suitor DSP Group is present in the segment with its arm DSP Mutual Fund (earlier called DSP Blackrock Mutual Fund).

Buzz on the deal street also pointed to Wipro founder Azim Premji’s investment arm PremjiInvest and India focused private equity major ChrysCapital as two other potential suitors for the transaction. Moneycontrol couldn't immediately contact PremjiInvest and Chrys Capital for a response.

Recently, the mutual fund industry was rocked by the Franklin Templeton fiasco, which saw the leading mutual fund house shutting six of its debt schemes due to a liquidity crunch amid the global outbreak of novel coronavirus, or COVID-19. This prompted the RBI to open a special liquidity window worth Rs 50,000 crore for mutual fund institutions. “The current environment may impact the pace of negotiations of the L&T MF deal,” the third source said.

Also read: Franklin Templeton crisis: When do investors get their money back?

In response to email queries from Moneycontrol, L&T Finance, JP Morgan, General Atlantic and IIFL Group and Blackstone declined to comment. Moneycontrol is awaiting responses from DSP Group and HDFC AMC and will update this article as soon as it hears from them.

MF industry: The pecking order and trends
L&T Mutual Fund is ranked 12th in the sector in terms of assets under management (AUM) and has a market share of around 2.7 percent, according to the latest data available with ICRA as of September 2019. Its AUM was around Rs 70,000 crore as of March 2019.

The top five players have cornered 58.5 percent of the market. In Q2 FY20, the QAAUM (quarterly average AUM) of the MF industry increased by Rs 0.18 lakh crore as against the preceding quarter to touch Rs 25.7 lakh crore. Contribution from systematic investment plans (SIPs) in the quarter under review stood at Rs 24,818 crore compared with Rs 24,543 crore in Q1. Net inflows surged to Rs 37,836 crore in Q2 compared to Rs 17,635 crore in Q1 FY20.

L&T Mutual Fund: The journey so far
Two years after entering the mutual fund business in 2010, L&T Finance edged out rivals and announced the acquisition of Fidelity's mutual fund business in India. The May 2012 deal was an aggressive move to boost growth in a highly competitive market. The deal value was pegged between Rs 550 crore and Rs 600 crore.

L&T Mutual Fund competes with the likes of UTI Mutual Fund, SBI Mutual Fund, HDFC Mutual Fund, Franklin Templeton Mutual Fund, ICICI Prudential Mutual Fund, Nippon India Mutual Fund, Kotak Mahindra Mutual Fund, and Axis Mutual Fund. HDFC Asset Management Company and Nippon Life India Asset Management are the two key listed players in the domestic mutual fund market.

A closer look at the suitorsGeneral Atlantic holds around 21 percent in IIFL Wealth Management, which has AUM of around Rs 23,000 crore as of Q2 FY20 and debuted on the bourses in September 2019. HDFC AMC is among the top three mutual fund houses in India with an AUM of around Rs 3.79 lakh crore. SBI Mutual Fund and ICICI Prudential AMC round up the top three club.

The DSP Group had signed an agreement in May 2018 to buy out BlackRock’s 40 percent stake in their joint venture DSP BlackRock Investment Managers Pvt. Earlier, DSP Group was the majority partner and owned 60 percent while BlackRock owned 40 percent. It has an AUM of around Rs 80,000 crore, according to the latest data.

AUM of the Indian mutual funds industry hit at a record high of Rs 27.86 lakh crore in January. Over the past decade, AUM of the Indian mutual fund Industry has seen a three-and-a-half fold growth from Rs 7.59 lakh crore in January 2010.

Ashwin Mohan
first published: Apr 29, 2020 11:49 pm