DLF enters Asset Management Business

DLF Pramerica, a JV between India’s largest realty firm DLF and Prudential Financial Inc (PFI) of the US, that got an in-principle approval to set up an asset management company (AMC) from the SEBI, expects to break even within three to five years in the business.

PFI is the majority shareholder in the JV with 61%, while DLF will own the remaining 39.5%. Pramerica is the brand name used by PFI in India and other select countries. The asset management business will have a capital base of $45 mn and will be based in Mumbai. DLF Pramerica Mutual Fund is a sub-brand under the umbrella brand of DLF Pramerica. The fund venture, DLF Pramerica Asset Managers Pvt Ltd, is headed by Vijay Mantri, who joined in April from the Indian fund unit of Deutsche Bank.

The AMC will provide full range of mutual fund and investment products, including domestic and international mutual funds to customers. Prudential Financial has assets under management of around $602 bn as on 30 September, 2008 and has operations in US, Asia, Europe and Latin America.

DLF Pramerica joins more than 20 firms looking to break into the Indian fund industry, which saw its assets grow more than four-fold to Rs 5.5 trillion rupees in five year ending 2007. According to a recent McKinsey report, the total AUM of the Indian mutual fund industry could grow to $350-440 bn by 2012, expanding 33% annually. While the revenue and profit (PAT) pools of Indian AMCs are pegged at $542 mn and $220 mn respectively, it is at par with fund houses in developed economies. Operating profits for AMCs in India, as a percentage of average assets under management, were at 32 basis points in 2006-07, while the number was 12 bps in UK, 17 bps in Germany and 18 bps in the US, in the same time frame, the McKinsey report said.

Even though many players are entering the mutual fund space, the space itself is seeing lots of turmoil. Assets have shrunk 28% to Rs 3.9 trillion this year due to a stunning 51.5% slump in India's benchmark index and outflows from fixed income funds. The mutual fund industry in India, in recent times, has seen a wave of redemptions especially in the debt schemes.

The sector is also seeing consolidation, recently Religare-Aegon AMC, which had recently started operations, acquired Lotus India AMC. The latter has begun operations in 2005. Even DLF Pramerica, has made its intentions clears, saying that it would also look at the inorganic growth route also in addition to the organic route, especially when there there were AMCs for sale available in the market.

Government to add a strategic investor to UTI MF, SUUTI to offload its state in corporate majors after March 2009

In a move to spruce up the country’s fourth largest mutual fund by assets under management, UTI MF, government is planning to include a strategic investor to the MF, but this will be done without diluting the nature of existing promoters of the fund house. Accordingly, the strategic investor could hold up to 26% stake in the mutual fund.
This move of the government was indicated by the Finance Minister in a recent meeting with the board of UTI MF.

Presently LIC, State Bank of India, Punjab National Bank and Bank of Baroda are the promoters of the mutual fund house. This move is expected add enormous value and strength the flagging mutual fund house. On the possibility of the kind of strategic partner, UK Sinha, the chairman and managing director of the fund housed, said that it could be a very big distributor or a very big investor in India from abroad or a large group.

The fund house has also deferred its proposed and much awaited IPO, and therefore also its pre-IPO placement. In March 2008, market regulator SEBI had given its approval to UTI MF for its IPO, but the fund housed had to put its IPO plans on hold due to extreme volatility in the markets then.

Among other developments, the Finance Minister said that the residual stake held by the Specified Undertaking of UTI (SUUTI) in corporate majors L&T and ITC will be transferred to the government after March 2009 when the undertaking is scheduled to be wound up. SUUTI was formed well over four years ago after the erstwhile UTI Mutual Fund was bifurcated into two in 2003-04, following a major crisis.

All assured return schemes and other assets and liabilities were transferred to the new entity SUUTI with objective that once all liabilities to the unit holders were finished, the undertaking could be wound up. While many schemes have been redeemed, some of the assets in the form of the shareholding in L&T and ITC are yet to be sold mainly because of the resistance from the entrenched managements. Meanwhile, the board of SUUTI has appointed ICICI Securities, JP morgan and Citigroup as the bankers to sell a part of the 27% equity holdings it controls in Axis Bank, the third-largest private bank in India.