L&T Looking to Sell Its Mutual Fund Business. Here Is What It Means for the Investors…

Jun 24, 2020


In the last one year, various mutual funds have announced a stake sale and handed over the reign of assets to other management companies. DHFL Mutual Fund sold its assets to its joint venture partner PGLH of Delaware Inc and became PGIM Mutual Fund, while Reliance Mutual Fund sold its stake to its joint venture partner Nippon Life Insurance to become Nippon Mutual Fund.

Currently, Essel Mutual Fund is in the process of finalizing a suitable partner who can buyout its business, while Manulife Investment Managers recently acquired 49% stake in Mahindra MF.

Now, reports suggest that L&T Finance is looking to put its mutual fund business on the block. The move is part of L&T's drive to monetise its non-core businesses and become a leaner conglomerate. L&T is expecting around Rs 4,500 crore from the sale of MF business.

L&T Mutual Fund had an AUM of around 59,000 crore as on May 31, 2020, which makes it the 12th largest AMC in India. The AMC has 31 open-ended schemes, which includes 12 equity schemes constituting around 24,000 crore of its total AUM. L&T has appointed JP Morgan as the merchant bank to advise them on the sale of the mutual fund business.

L&T started its mutual fund business over a decade ago with the acquisition of DBS Cholamandalam AMC in 2009 and later acquired Fidelity's mutual fund business in 2012.

As per news reports, private equity firm Blackstone has emerged as a top contender. Financial services firm IIFL Wealth and other private equity firms like Carlyle and ChrysCapital have also expressed interest in buying L&T's mutual fund business. Rival fund houses like Axis MF and ICICI Pru MF are also reportedly in the fray.

Any final decision on a potential deal will be subject to approval from SEBI.

Till now neither L&T nor any of the potential suitors have any given any comments regarding the acquisition.

Potential impact of the acquisition on investors

Barring a couple of schemes, L&T MF's performance across most equity and debt schemes has been mediocre in the last few years. The performance of most schemes as compared to the respective benchmark and category peers across different time frames have been average or below average.

It remains to be seen who gets the reigns of L&T MF's business and what the new management brings to the table in terms of systems, investment processes, and risk management.

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Blackstone is one of the world's leading investment firms specializing in private equity, credit, and hedge fund investment strategies. If Blackstone decides to bring its rich experience in international investment and businesses to its asset management business in India, it can help improve the performance of L&T Mutual Fund.

On the other hand, IIFL Wealth is an Indian Wealth Management firm that offers asset management, investment advisory, treasury, corporate advisory, financial, and management consulting services. Notably, IIFL Wealth recently acquired L&T Finance Holdings' wealth management business, which makes it a strong contender to buyout the firm's mutual fund arm.

What should investors do?

A change in management does not warrant a reshuffling of your investment portfolio. You should only look for alternatives if you find the performance of a fund unsatisfactory over a longer duration, based on qualitative and quantitative parameters.

[Read: Make Mindful Choices of Mutual Fund investments in Current times]

Many investors only focus on quantitative parameters such as performance track record and risk ratios. However, it is important to understand the investment philosophy of the fund house and investment processes they follow. Only process-driven fund houses can give you consistent performers over the long term.

Further, before taking any investment decisions evaluate your investment objective, risk appetite, and investment horizon to select the appropriate scheme based on quantitative and qualitative parameters.

At PersonalFN, we arrive at top rated funds using our SMART Score Model. If you wish to select worthy mutual fund schemes, I recommend you to subscribe to PersonalFN's unbiased premium research service, FundSelect.

Additionally, as a bonus, you get access to PersonalFN's popular debt mutual fund service, DebtSelect.

If you are serious about investing in a rewarding mutual fund scheme, Subscribe now!

Warm Regards,
Divya Grover
Research Analyst

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