Just what has Invesco bought into in India?
Religare AMC is a nascent but fast-growing Indian business that has been on the lookout for a powerful global franchise to tie-up with for some time. Those plans look set to come to fruition.
US-based firm Invesco revealed yesterday it had entered into a definitive agreement to buy 49% of Religare AMC, the $2.6 billion asset management arm of Religare Enterprises. Invesco declined to disclose what it paid for the deal when asked by AsianInvestor.
The joint venture is to be called Religare Invesco Asset Management Company and will be headed by Saurabh Nanavati, who is currently chief executive of Religare AMC.
Interestingly, that now leaves Tata as the only fund house in India's top 15 without an international tie-up. It comes on the back of Nippon Life purchasing a 26% stake in Reliance Capital Asset Management this year. Other recent tie-ups include IDFC selling a 25% stake to French bank Natixis, while Goldman Sachs bought out ETF specialist Benchmark Mutual Fund last year.
It’s a bold move by Invesco, given that an international house of the heft of Fidelity is just in the process of selling its Indian funds business to L&T Finance, part of the Larsen & Toubro Group.
Penetration rates in India’s mutual funds industry are notoriously low, while growth has remained challenged ever since the Securities and Exchange Board of India made the well-intentioned move to ban fund houses from charging up-front commissions from August 2009*.
In the statement announcing the deal, Invesco’s president and CEO, Martin Flanagan, claimed the addition of Religare AMC would “enhance Invesco’s presence in an important and growing market, while providing Religare’s clients access to our broad range of investment solutions”.
What Invesco confirms is that, pending regulatory approval of the deal, it will have a seat on the board of the JV. But in terms of management control, that appears to remain with Religare AMC. Yet other global players have preferred management control or majority ownership of their India JVs, including BNP Paribas, Deutsche, Goldman Sachs and HSBC.
So what has Invesco bought into?
Religare’s asset management business was only established in December 2008 when it acquired Lotus Asset Management, a JV between Fullerton Fund Management and Sabre Capital.
Nanavati has previously told AsianInvestor that Lotus had just $200 million in assets when acquired in what was a distressed sale at that time. The fact Religare AMC now boasts $2.6 billion makes it one of the real growth stories in the domestic marketplace.
Essentially there are three pieces to Religare’s asset management business: a domestic franchise; an international business; and a small portfolio management service to high-net-worth accounts.
In terms of its local business, its equity proportion is low at around 10%, compared with 90% for fixed income. Within the latter, it is estimated 70% is institutional and 30% retail. That’s an interesting statistic, given that Religare AMC has branches in 53 cities across the country.
Nanavati estimated back in a December interview with AsianInvestor that 25% of its fixed-income business was long-term, with the majority short-term including money-market funds.
He noted at the time that it was just reaching its three-year inflection point for track record, with 90% of its assets still coming from India’s vast IFA segment – against an industry distribution split of 30-40% from banks, 30% from IFAs and 30% from national distributors.
Religare AMC has offices in Singapore, Hong Kong and Japan, with local asset management sales staff there. In August last year it raised an open-ended fixed-income retail fund in Japan containing a mix of Indian government and corporate debt. Its fundraising target is $2 billion. It also raised a mid- and small-cap equity fund in Japan.
Nanavati, who was unavailable for interview at press time, also previously revealed that Religare was targeting setting up sales offices in the Middle East and Australia by the end of the first quarter of this year, and launching fixed income funds in Singapore and Hong Kong.
When asked back in December whether it was in talks about an international tie-up, Nanavati replied that it had been in advanced stages of discussions with a foreign player previously but that market volatility had put that on hold.
But in general he indicated Religare was open to discussions. “We are saying we want to become global asset managers at some point of time, so we would really need to see what capabilities the partner would bring to us,” he said.
“If the partner is fundamentally bringing to us a franchise, a distribution set up across the world and access to good quality foreign product, which we do not have at this point in time, then we would look at it.”
He added that he saw phenomenal value in bringing a local fund house with domestic capabilities to developed markets such as the US, Europe and Japan.
“Increasingly large institutions and pension funds want that,” he said. “They are moving away from global fund houses offering everything that are not able to generate alpha, and they are looking in big countries for firms with presence and local expertise.”
Asked what benefits he would want an international fund house to bring, he added: “Access to international products with good track records in their local markets, and distribution capability across the world.”
* See AsianInvestor’s February 2012 issue for an in-depth look at India’s mutual funds industry.