Edelweiss to buy JPMorgan’s mutual fund business in India

JPMorgan AMC is the seventh foreign company to sell off its mutual fund business in India. Photo: AFP

JPMorgan AMC is the seventh foreign company to sell off its mutual fund business in India. Photo: AFP

Mumbai: Edelweiss Asset Management Ltd, a unit of Edelweiss Financial Services Ltd, said on Tuesday that it has agreed to buy the mutual fund (MF) business of JPMorgan Asset Management India Pvt. Ltd for an undisclosed sum.

A person directly familiar with the development said on condition of anonymity that the transaction is an all-cash deal valued at 1.5%-2% of JPMorgan Asset’s Rs.7,501-crore asset size.

That works out to a price of Rs.112-150 crore.

JPMorgan Asset is almost five times as large in terms of assets as Edelweiss Asset. For the quarter ended 31 December, Edelweiss managed average assets worthRs.1,632.36 crore.

In a similar deal last year, DHFL Pramerica Asset Managers Pvt. Ltd bought out Deutsche Asset Management (India) Pvt. Ltd that managed 10 times more assets than Pramerica then.

“We have built a substantial onshore funds business in India over the past decade. As a result of a global strategic review and after careful consideration of what is best for our clients and employees, we have decided to find an acquirer for this business,” said Michael Falcon, chief executive officer of Asia Pacific, global investment management, at JPMorgan Asset Management, in a statement.

“We believe that Edelweiss is a suitable acquirer for this business, and this will be a positive development for our clients and our employees,” Falcon added.

On 16 March, Mint reported that Reliance Capital Asset Management Ltd and at least two other large and two mid-sized asset management companies (AMCs) were eyeing the India assets of JPMorgan AMC.

On 4 March, The Economic Times reported that Tata Asset Management Ltd was in talks to buy out the assets of JPMorgan’s domestic mutual fund business.

“Edelweiss has shown a clear commitment to grow its asset management business in India, which is in line with the aspirations JPMorgan AMC employees have. The deal will enable it to sell our products and use our channels and on the other hand it will allow us to sell its schemes and utilize its channels, which is predominantly through Independent Financial Advisers. So, there is a significant synergy in the deal,” said Nandkumar Surti, managing director and CEO, JPMorgan Asset.

Speculation of a possible sale by JPMorgan Asset strengthened after the US-based fund house faced a crisis in two of its fixed income schemes in India last year.

In August 2015, the fund had to restrict redemptions from the two schemes due to their exposure to debt securities of troubled Amtek Auto Ltd, which was downgraded by rating agencies.

JPMorgan subsequently split those holdings into a separate unit and eventually sold off the Amtek bonds to repay investors.

According to Kaustubh Belapurkar, director-fund research, Morningstar India Pvt Ltd., it is good deal for Edelweiss.

“JPMorgan AMC has built up a decent bouquet of MF schemes over the past few years, and some of its schemes are really performing and large. Edelweiss has been showing keenness to grow its asset management business and this deal gives Edelweiss a ready MF portfolio. This also gives Edelweiss an expert fund management team, which is really better than many other teams in the industry,” Belapurkar said. “In my opinion, the withdrawal of investors from JPMorgan AMC’s fixed income schemes in August-September due to the Amtek bond exposure episode was a trigger point for JPMorgan AMC to sell off in India. Otherwise, since foreign players are mostly deep-pocketed, it is not really difficult for them to compete and do business in India if they are able to build a strong franchise or a performing asset-base here.”

In the mutual fund industry, acquisitions are valued on the basis of the asset mix of a fund house, network strength, long-term earning prospects and profitability of the schemes sold. Typically, the higher the amount of equity assets under management over the long term, the greater is the valuation.

Dhirendra Kumar, chief executive of Value Research, a Delhi-based MF analytics firm, said in the 16 March Mintreport, “If one segregates the equity and fixed income assets of JPMorgan AMC and analyses their earnings for a three-year period, the valuation of a fund house like this can be a minimum of 2-2.5% of its assets.”

JPMorgan AMC does have a few top-rated schemes, according to Value Research.

For instance, JPMorgan India Mid and Small Cap Fund, with assets worth Rs.539 crore, is a four-star rated equity scheme in terms of its performance over a one-year period, according to Value Research.

Market volatility, an increase in minimum net worth requirements to Rs.50 crore from Rs.10 crore and a rule requiring sponsors to invest their own money in all their open-ended schemes have put pressure on AMCs in India’sRs.12.62 trillion mutual fund industry in recent years.

JPMorgan is the seventh foreign company to sell its mutual fund business in India.

While Goldman Sachs SA and Deutsche AMC exited last year, ING Investment Management (India) Pvt. Ltd sold its MF business to Birla Sun Life Asset Management Co. Ltd in 2014. In the same year, Kotak Mahindra Asset Management Co. Ltd purchased the assets of PineBridge Investments Asset Management.

Earlier, Morgan Stanley Investment Management Co. Ltd had its schemes acquired by HDFC Asset Management Co. Ltd.