There’s change in the air at India’s fifth-largest asset management company. Reliance Nippon Asset Management – with assets worth Rs 2,02,649 crore as of September 2019 – has been fully taken over by partner Nippon Life Insurance. The fund house will now be called Nippon India Mutual Fund (NIMF). Thanks to the Reliance brand, the fund house has been popular with many investors.
The market capitalisation of the listed entity was Rs 16975 crore at Monday’s prices, representing around 8.4 per cent of its assets. But Nippon Life has bought a 75 per cent stake for Rs 6000 crore. Thus, the deal may have gone through at a significant discount to Reliance Nippon AMC’s current market valuation.
Deal valuations aside, the key question in the minds of investor’s in the mutual fund schemes of the house is one of whether there would be continuity of investment philosophies. Also unit holders may be worried about whether fund managers would continue or move out. In short, mutual fund investors may now like to know if they should persist with their investments in the new entity or if they should redeem.
Here are the answers to some key questions on top of investors’ minds.
Nippon Life not new to India
In 2012, Nippon Life Insurance bought a stake in Reliance Mutual. The company was subsequently renamed as Reliance Nippon Life Asset Management (RNLAM). The new entity went public in October 2017. In September 2019, Nippon Life purchased a 75 per cent stake.
The 130-year-old Nippon Life is the largest private life insurer in Japan and has assets under management worth $700 billion worldwide. The company has international operations in the US, Europe, Asia and Australia. It holds stake in TCW – a US-based asset manager – and DWS – a Germany-based asset management group. It is interesting to know that DWS had an asset management company in India, which was sold to Pramerica AMC (now PGIM) in August 2015.
Current leaders to stay
As things stand now, the current chief executive officer, Sundeep Sikka, and other members of the top management team have decided to continue with NIMF. Industry observers view the change in ownership positively, as the AMC would now be steered by the stronger hands of Nippon Life Insurance. “With Nippon taking over the entire stake of Reliance, investors need not worry about the sustainability or continuity of the asset management company (AMC),” says Renu Pothen, head of research, fundsupermart.com, an online mutual fund distributor.
“The overhang in the form of stability of the promoter entity of the company is over and the new owners will definitely work for better. It will result in better risk-adjusted returns for unit holders and minority shareholders of the company too, as it will attract best talent to run the business,” points out an ex-CEO of a leading mutual fund house, who wish not to be quoted.
Both Nippon Life Insurance and RNLAM have always worked with independent financial advisors. That makes a perfect recipe for the continuation and growth of the business even in tier II and tier III towns, he added.
Continuity for unit holders
The continuation of the existing management team and Nippon Life’s familiarity with Indian business are expected to play out in the favour of unit holders of NIMF. “We may not see a big change in the working of the company, as Nippon Life has been a shareholder for almost seven years and has been offering insights to the existing management which is going to continue with the company,” says Gautam Kalia, head- investment solutions, Sharekhan. He has advised his clients to continue with their investments in NIMF.
NIMF has 35 equity, two gold, six hybrid and 17 debt schemes. When the management opts to stay on, there are relatively less hiccups in the working of the company.
When Invesco decided to take over Religare’s stake in the asset management business, the transition was smooth and even benefitted the unit holders. The continuity in the management played a big role in it.
Industry observers also expect Nippon Life to enrich the offering to Indian investors both quantitatively and qualitatively. Omkeshwar Singh, head of RankMF said, “Nippon Life Insurance is expected to bring in more products to Indian markets that will help Indian investors to invest overseas across asset classes. It should also bring in new investment strategies that will enhance the risk-adjusted returns for Indian investors.” As of now NIMF offers one Hang Seng index exchange traded fund and actively managed funds that invest in Japan and USA (one scheme for each country). “Nippon Life should be able to launch new products that should provide Indian investors more opportunities to diversify into other markets as well,” reiterates Pothen.
While the new products and new investment strategies may improve the number of investment options for Indian investors, there may be qualitative improvement too. “Nippon Life should bring in an additional layer of global risk management practices and investment management processes to the Indian business. Effective implementation of this should enhance the risk-adjusted returns for the Indian investors,” says Kalia.
Going by the observations of industry watchers and experts, it would be advisable for you to hold on to your investments for now.
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