After the Securities and Exchange Board of India abolished the entry load on mutual funds, the asset management companies (AMCs) have found that their business models have gone for a toss. They can no longer dip into investors’ corpus to pay for the huge launch expenses of funds. This would put a severe strain on the survival of several AMCs. These companies were designed to be businesses run on a small capital base. They cannot take on the huge cost of advertising and promotion on themselves. Already some of the AMCs are in talks to sell out. A few weeks ago the Murugappa group sold its stake in DBS Cholamandalam mutual fund to L&T Finance. Which are the others that would be vulnerable? Those that have made losses in 2008-09 have little hope to launch new funds. Their only option is to recapitalise the business. Of the 26 AMCs that have declared results for 2008-09, 11 have registered losses. Surprisingly some AMCs like Quantum, Kotak Mahindra, ICICI Prudential and UTI are yet to declare their results for financial year 2008-2009.
Among the large loss-making AMCs, Principal PNB Asset Management Company, which is a joint venture between Principal Mauritius, Punjab National Bank and Vijaya Bank, tops the list. In the financial year 2008-2009 the AMC has reported a loss after tax of Rs42.74 crore. It manages Rs8,138 crore, most of it under its various debt funds. Mirae Asset Global Investments (India), sponsored by the Korean fund giant Mirae, was the second in the list, declaring a loss of Rs20.06 crore after tax. It was one of the last to enter the business—in 2007—when the market was booming. It has Rs174 crore of assets under management. Canara Bank and Robeco Group joint venture Canara Robeco Asset Management which manages about Rs8,478 crore lost Rs17.17 crore last year. A surprising entry in the list is HSBC Global Asset Management which has both performance as well as strength of distribution on its side. It reported a loss of Rs16.95 crore after tax even though it has Rs7,782 crore of assets under management. Surely HSBC will not sell out its Indian asset management business.
The joint venture of Bank of Baroda and Pioneer Investments, Baroda Pioneer Asset Management Company, posted a loss of Rs6.12 crore after tax. It too is a small AMC, managing Rs3,875 crore of assets. JM Financial Asset Management was one of the earliest to have got permission to set up an AMC. It has been around for 14 years and its funds have been racked by poor performance. The fund has reported a loss after tax of Rs5.69 crore in the financial year 2008-2009. Sahara Asset Management and Shinsei Asset Management (India) are absolutely tiny entities, each reporting loss of Rs2.51 crore. Sahara will almost certainly be sold sooner or later. Shinsei, a large Japanese bank, has just come into India and will wait and watch how the business does. Edelweiss Asset Management, another new entrant, posted a loss of Rs2.42 crore. It has no plans to sell out out now but will certainly lie low. One AMC that may sellout is Escorts which reported a loss of Rs76 lakh. It does not launch new funds and has a very small corpus of around Rs180 crore. Bharti AXA, another new entrant, reported a loss after tax of Rs2.5 crore but is funded by deep-pocketed sponsors. In short, PNB, Principal, Canara Robeco, Baroda Pioneer may seem undergo a realignment of shareholding while Sahara, Escorts and JM Mutual Fund don’t seem to be long-term survivors in their present form.