Yesterday evening a friend called up to say ..in 1995 we saw the birth of the Mutual Fund industry in 2015 will we see the end?

Well to start with there is no ‘take over of a mutual fund’ as the whole world will report today. I think L&T Asset Management Company will take over the schemes managed by Fidelity AMC.

Frankly I am not so skeptical about the industry. When L&T took over Cholamandalam asset management company, the consolidation /  integration process had started. Yes the consolidation is happening slowly – that is clearly because the industry is not growing. Unlike a few other deals, this deal would have involved some bargaining, and the seller had something on offer. Heard a couple of deals earlier where the sponsor was willing to PAY to get out of the business, but the details were sketchy.

What will now happen:

– People are skeptical about L&T’s ability to retain the ‘A’ team of Fidelity – even assuming that they are available.

– If the fund managers are not available how much of the Aum will stay?

Let us look at what L&T can do:

– get some high profile Fund Manager as step 1. It has to be a big brand name and a person with good image and communication skills.

– will such a guy join and will he stay is what one will have to see, but in this industry to get such a person is not very difficult.

What should the investor do?

this is really a difficult call. When a merger happens, the culture changes. Also when a fund house with Rs. 200 crores takes over a fund with Rs. 6500 crores (equity portion) not sure which culture will prevail.

The other 2 scheme take overs were when Zurich’s scheme were taken over by Hdfc (which was till then known as a debt fund house!) and Kothari Pioneer’s schemes were taken over by Franklin Templeton.

Many of us know that both Hdfc and FT went to great lengths to integrate the ‘new comers’ into the culture of the parent organisation. In fact many of the people from Zurich and Kothari Pioneer are in very important positions in Hdfc and FT respectively. Right from lowest level of sales guys to the top fund manager – I am sure you would have guessed – it is Prashant Jain that I am taling about! Amazing he never changed jobs but has at least 3 visiting cards. Two of the companies he worked for got taken over. One was of course Zurich…anybody out there who knows which was the other fund?

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  1. I was at the press conference yestarday. YMD refused to give us the price. Why shoudl the shareholders of LnT finance not know at what price the deal was done? Assuming that they paid Rs. 500 crores for the whole deal, it is perhaps expensive. Now if the Aum falls to say Rs. 4000 crores (so tough to tell a hung ho management that they do not inspire the funds to stay!!) the acquisition cost will be in the region of 12%.

    A typical L&T DIWORSIFICATION, I think, and ego driven purchase which will help in fiefdom building.

    If you are a LnT finance shareholder or Fidelity Unit holder, take your money and Run

  2. Hello Subra sir,

    As you have said above there might be some changes in management. But as you have mentioned it is difficult to say which culture will prevail.
    The main concern I have is that Fidelity is known worldwide for their detailed and bottom up approach in investing. They are one of the biggest and most respected fund house in the world.
    In India most of the companies have a more aggressive approach towards investing which is more of a top down approach.
    Fidelity and Franklin Templeton were the companies in India which had this Bottom up approach which I personaly feel is more safer in such a volatile market as India.
    I think Fidelity exiting Indian market will be a very big loss to Indian investors.

  3. The deal does not look good at all for the LnT finance shareholder at all. LnT finance is losing at least Rs. 500 crores in the MFI business, now they will lose money in the AMC business also. The unit holder is going to ask ‘Will LnT mf handle the funds better than Fidelity? The answer is obviously NO. So one will see funds run away from LnT mf

  4. He joined 20th Century Mutual Fund along with his friends Chandresh Nigam and E.A.Sundaram back in 1994. It was acquired by Zurich financial services couple of years latter.

  5. Taking over a well run fund scheme WITHOUT the fund manager is like buying Ongc without the oil wells. Or is it like buying ABCL without Amitabh Bachhan.

    Fidelity was (is) a well managed fund. Will the SBI fund managers (now with LnT) be able to manage that? Esp the Hard Assets in US kind of a fund? NO way. Just no way.

    The cost for LnT will be too high as people keep running away from the the fund. It is the ego of the LnT team that prevents them from seeing the obvious. Employees will have fun.

  6. I also totally agree with the views expressed here. L&T will surely face the ehat and there will be a lot of expectations from investors. To fill such big shoes as of Fidelity is going to be tough task for L&T.
    Surely as many said investors will run away from L&T. Also we have to understand that the investors who have invested in Fidelity is because it is “FIDELITY”. There is a lot of respect to that name and a legacy of well managed funds from many years.
    I do not know why Fidelity is exiting India. Is this because they are suffereing losses or is there any other reason. Can somebody put some light on this.
    Now with L&T taking over there will a lot of fund exits from investors. Surely I may be one of them. I have huge amounts of money invested in Fidelity funds only because it was FIDELITY.
    No other fund manager or fund managing group can equal the culture of Fidelity.
    What will start is another aggressive approach to investing head on….

  7. No website, magazine or channel will give the classic advice ‘If the fund manager leaves, come out of the fund scheme’.

    Why?

    In this moribund market it is likely to be the only Mutual Fund with an ad budget.

    So the advise will be “Do not be in a hurry to react, do not over react…wait for 6-8 months and see what is happening” then decide. This is a harmless suggestion is it not? LOL

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