Edelweiss to buy JPMorgan’s mutual fund business in India

Mumbai: Edelweiss Asset Management Ltd, a subsidiary of Edelweiss Financial Services Ltd, on Tuesday announced the acquisition of the mutual fund (MF) business of JP Morgan Asset Management India Pvt. Ltd. The company did not disclose the size of the deal.

With MF assets worth Rs.7,501 crore, JP Morgan MF is almost five times bigger in size than Edelweiss MF. In a similar deal last year, DHFL Pramerica Asset Managers Pvt. Ltd had bought out Deutsche Asset Management (India) Pvt. Ltd that managed 10 times more assets than Pramerica then.

For the quarter ended December, Edelweiss MF managed average assets worth Rs.1,632.36 crore.

“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 for JP Morgan Asset Management in a press release.

“We are pleased to have reached an agreement with Edelweiss, a leading diversified financial services conglomerate with extensive reach and expertise in the financial services industry. We believe Edelweiss is a suitable acquirer for this business and this will be a positive development for our clients and employees,” Falcon said.

JP Morgan AMC is the seventh foreign company to sell off its MF business in India.

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 JP Morgan AMC.

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

Talks of a possible asset sell-off by JP Morgan AMC have been strengthening after the US-based fund house faced a crisis in two of its fixed income schemes in India last year.

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

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

In the MF industry, acquisitions are valued on the basis of the asset mix of a fund house, network strength, long-term earnings 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, CEO of Value Research, a Delhi-based MF analytics firm said in the 16 March Mint report, “If one segregates the equity and fixed income assets of JP Morgan 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.”

JP Morgan AMC does have a few top-rated schemes, according to Value Research. For instance, JP Morgan 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, says 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 asset management companies in India’s Rs.12.62 trillion mutual fund industry in recent years.

While Goldman Sachs and Deutsche AMC exited last year, in 2014, ING Investment Management (India) Pvt. Ltd sold its MF business to Birla Sun Life Asset Management Co. Ltd and Kotak Mahindra Asset Management Co. Ltd purchased the assets of PineBridge Investments Asset Management Co. Ltd. Earlier, Morgan Stanley Investment Management Co. Ltd had its schemes acquired by HDFC Asset Management Co. Ltd.

“In addition to its leading role in the financial services industry in India, one of the reasons we selected Edelweiss as the preferred acquirer was its commitment to continue to drive the best outcome for our clients. Another major consideration was their strong intent to retain the vast majority of our employees, including our investment team,” said Nandkumar Surti, managing director and chief executive officer of JP Morgan Asset Management India Pvt. Ltd.

“Both JPMAM and Edelweiss are committed to ensure a smooth and seamless transition for our clients, distributors and employees. We are also committed to driving results for our clients and to work with a ‘business as usual’ approach during the transition period,” Surti added.