Private Equity Firm Blackstone Emerges as a Top Contender to Buy L&T Mutual Fund

Sep 11, 2020

A couple of months ago I had mentioned in my article that L&T was looking to sell its mutual funds business as part of a drive to monetise its non-core businesses and become a leaner conglomerate.

L&T Mutual Fund is the 12th largest asset management company (AMC) in India having total asset under management (AUM) worth Rs 63,078 crore as of August 31, 2020. The AMC has 58 open-ended and close-ended schemes, which includes 14 equity schemes constituting around 27,750 crore of its total AUM and 39 debt schemes accounting for Rs 27,479 crore. L&T has appointed JP Morgan as the merchant bank to advise them on the sale of the mutual fund business.

There is a strong buzz that private equity firm Blackstone is keen on acquiring L&T's mutual fund business. It has reportedly offered to pay Rs 3,200 crore or around 5% of L&T mutual funds total AUM. L&T is expecting the transaction to be valued between Rs 3,500 crore to Rs 4,000 crore.

Any potential deal, however, will be subject to approval from SEBI. While Blackstone is hoping to acquire a controlling stake, it may be difficult to get approval from SEBI. This is because the market regulator does not allow private equity firms to own AMCs in India.

According to a news report published in the Economic Times, it may not be easy for private equity firms to acquire mutual fund business in India. Most private equity firms raise funds for a limited period (around 7-9 years) and hence the regulator may feel that it will not be able to provide stable capital. However, the same report has suggested that Blackstone may find ways to address these concerns and get the necessary approvals.

If it does get the approval, it will become the first major foreign private equity firm to enter Indian mutual fund industry. However, the pandemic situation and the volatility in the financial markets can make it difficult to arrive at a favourable deal and can also lead to delays in concluding the stake sale.

Financial services firm IIFL Wealth is also negotiating a deal and is another top contender to acquire L&T mutual fund. It could emerge as a winner if Blackstone fails to get SEBI's approval. Earlier reports also suggested that Axis mutual fund may acquire a stake in L&T MF, but it is reportedly out of the fray because its offer was much lower than Blackstone's.

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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.

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]

Apart from the consistent underperformance of the scheme, listed below are the other circumstances when one can consider exiting their equity mutual fund scheme:

  • Your investment has grown to the desired corpus

  • To gradually shift to safer avenues when your financial goal is approaching

  • During portfolio rebalancing to maintain the desired asset allocation

  • The fund objective changes and is no longer in congruence with your own objective

  • The fund risk profile changes and doesn't match your current risk appetite

  • In case of a financial emergency when you have no other option

  • You wish to adopt change in investment style (value, growth, blend, aggressive, conservative, etc.)

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 unbiased research.

If you wish to select worthy mutual fund schemes, I recommend that you 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.

PersonalFN recommendations go through our stringent process that assess both quantitative and qualitative parameters (as mentioned above before), providing you with Buy, Hold, and Sell recommendations on equity and debt mutual fund schemes.

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


Warm Regards,
Divya Grover
Research Analyst


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