SG buys stake in SBI funds arm

SG Asset Management (SGAM) and State Bank of India Fund Management (SBI-FM) have agreed to SGAM's acquiring a 37% stake in the domestic house, a unit of India's biggest banking group, State Bank of India.

The deal comes hot on the heels of SGAM's recent JV with Industrial Bank of Korea and now gives the firm a presence in every big Asian market. SGAM's first large entry to the region was 1987's acquisition of Yamaichi Capital Management in Japan. Subsequent forays into markets such as Indonesia, Taiwan and Thailand were on a smaller scale, but three years ago SGAM looked to build its Asia business as China was finalising its WTO agreement. It subsequently forged a JV with Fortune Trust - it was the first such deal to be approved by the Chinese regulators, and its second mutual fund which launched this past March raised a record Rmb13 billion. The Korea agreement soon followed and was modelled on China deal. SGAM now manages E300 billion of assets globally.

Now the India partner has been agreed. The firm has been trying to enter this market since 2001 but couldn't find the right partner, says Philippe Collas, Paris-based deputy CEO of SG Group and chairman of SGAM. Now that it has established so many businesses, including the Singapore office that runs all other markets including Australia, the firm is considering creating a new regional director's position, although it has not decided who would fill such a role or where it would be located within Asia.

Late last year, SGAM learned that SBI was looking for a partner for its struggling asset management unit. SBI has a huge network of 105 million customers and claims 20% of the bank deposit market, but only 3-4% of the mutual funds market. According to the Indian mutual funds association, SBI-FM ranks last among 30 houses in terms of AUM, with around $12 million as of May. So clearly it needed to boost its fortunes.
AK Purwar, SBI chairman, says the partnership should allow SBI-FM to become one of the industry's leaders within four years.

Part of SBI-FM's problem is that many SBI customers are poor and rural. But, says Collas, the bank also boasts a sizeable customer base among the mass affluent, and SBI does have urban networks too. The problem was that SBI personnel aren't trained to sell funds, and SBI-FM product didn't cater to the bank's wealthier customers.

The first order of business for the partners is to review the existing product line, keeping some and shedding others, and looking at new products. Although since last year Indians can invest up to $25,000 offshore, SBI-FM currently lacks an international product. Collas says SGAM will help develop both new funds as well as consider marketing existing SGAM funds. The JV will also target institutional clients.

The second priority is training SBI salespeople. The bank has around 13,000 branches, and Collas says the JV will attempt to train people in perhaps 1,000 of those.

SGAM personnel will take charge of risk management, and also play a role in product development and marketing. SBI-FM's current CEO, PGR Prasad, will continue in that role.