This month, Kotak Mahindra AMC announced that it has executed a definitive agreement to acquire the domestic schemes of PineBridge Mutual Fund, subject to regulatory approvals.
As on August 31, 2014, the Assets Under Management, or AUM, of Kotak Mahindra Mutual Fund were around Rs 37,000 crore while that of PineBridge Mutual Fund stood at around Rs 660 crore.
Earlier this year, Birla Sun Life Mutual Fund acquired the assets of ING Investment Management India, and HDFC AMC acquired Morgan Stanley.
Nothing new.....
In 1999, Zurich India Mutual Fund acquired ITC Threadneedle Mutual Fund. Around four years later, HDFC AMC acquired Zurich AMC. In 2002, Sun F&C Mutual Fund acquired Jardine Fleming Mutual Fund (sponsored by JP Morgan India). The very next year, Principal Mutual Fund took over Sun F&C Mutual Fund. In 2002, Franklin Templeton AMC acquired Pioneer ITI AMC. In 2004, Birla Sun Life Mutual Fund acquired Alliance Capital Mutual Fund.
After a lull, once again activity spruced up on that front.
In 2009, L&T Mutual Fund came into existence when it acquired DBS Cholamandalam Asset Management Ltd. In 2011, Goldman Sachs Asset Management acquired Benchmark AMC. In 2012, we had the high profiled exit of Fidelity’s mutual fund business in India with L&T Mutual Fund taking over. Last year Daiwa Mutual Fund sold its assets to SBI Mutual Fund.
Each exited for various reasons. Morgan Stanley announced its plan to divest its private wealth management unit in India to Standard Chartered. These divestures were part of the company’s initiatives to dispose unprofitable and non-core business units and focus on core operations. Not surprisingly, the asset management arm followed the same path.
On the other hand, Fidelity bailing out was a decision made by the asset manager on the profitability of the industry. Despite its core business being asset management, after incurring losses year after year, they figured that the return was better elsewhere and found the Indian market no longer attractive.
ING Investment Management (India) has been a loss-making AMC. Moreover, the recent SEBI ruling to increase the minimum net worth for fund houses to Rs 50 crore has not gone down well with smaller AMCs.
In the case of an acquisition of a fund house, investors need to address four issues.
- Will the scheme that they are invested in remain a standalone one? If yes, will the mandate change or will it be left untouched? If the scheme is being merged into another one, how is the existing scheme doing? Again, is the investment objective of the new scheme different?
For instance, PineBridge has just two equity funds. Will PineBridge India Equity Fund be merged with an equity scheme of Kotak AMC? Will Pinebridge Infrastructure and Economic Reform Fund continue with its current mandate?
- What is the pedigree of the fund house taking over? How are its current schemes doing?
In the case of the acquisition by Birla Sun Life AMC, we believe the AMC’s quality is in line with the industry norm. Investors need not worry. However, if you as an investor have already invested in the schemes of BSL AMC, then you could think of exiting if you are not keen on increasing your exposure to the fund house.
Investors in PineBridge Mutual Fund should do a careful evaluation of their investments since they could locate schemes superior to those offered by Kotak Mahindra AMC. In terms of pedigree, the AMC is an average player.
- What is the tax implication?
There is none, in the sense, the original date of acquisition still holds good. So when you decide to sell your units, the date at which you bought into the scheme is taken into account for calculating short- and long-term capital gains, not the date of the acquisition by the new fund house.
Should you decide to get out of the scheme, SEBI has mandated that an exit window of 30 days is to be provided allowing investors who wish to redeem their units to do so without any exit load.
