Will Blackstone Group Manage L&T Mutual Fund’s Assets Successfully?

Oct 21, 2020

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One of the world's leading private equity firm Blackstone's negotiations to acquire L&T Mutual Fund has reportedly reached advanced stages. US-based Blackstone is looking to acquire 100% stake in the AMC for Rs 3,200 crore. If the talks prove to be fruitful, an announcement could be expected soon.

L&T Mutual Fund is the 12th largest asset management company (AMC) in India having total asset under management (AUM) worth Rs 64,692 crore as of September 30, 2020. The AMC has 58 open-ended and close-ended schemes, which includes 14 equity schemes constituting around 27,947 crore of its total AUM and 39 debt schemes accounting for Rs 28,814 crore. L&T has appointed JP Morgan as the merchant bank to advise them on the sale of the mutual fund business.

L&T is looking to put its mutual fund arm on the block as a part of its drive to monetise its non-core businesses and become a leaner conglomerate.

On the other hand, Blackstone is looking to ramp up its scale of operation in India, especially in the financial services space, as it sees India as one of the strongest performers in the world. Back in March, it had said in an interview with media that it is optimistic on the growth prospects of India. It added that the company, which has invested over $6 billion in India in the past 2 years, is scouting for buyout opportunities which have arisen out of economic slowdown coupled with the credit crisis. Acquiring L&T MF is one such opportunity it is keen on.

However, getting SEBI's nod for the same can prove to be a hurdle. As per SEBI's regulation, PE firms are restricted from acquiring more than 39.99% stake in an AMC. To be able to become a mutual fund sponsor and set up an AMC, an entity needs to have a stake of 40% or more and comply with other eligibility norms as stipulated by SEBI.

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Will Blackstone prove to be a successful asset manager?

Though the company does not have experience in mutual fund management, media reports suggest that to build a case for SEBI's approval, Blackstone will be showcasing its track record in managing public investments through its various product offerings such as hedge fund solutions, alternative asset management, and managing real estate investment trust (REITs) to be able to get complete ownership of the AMC.

Notably, 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 if Blackstone 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, alternative asset management, non-investment grade credit, real estate and hedge fund investment strategies. If Blackstone becomes successful in bringing 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. Once it gets an approval, Blackstone will become the first major foreign private equity firm to enter the Indian mutual fund industry.

That said, the history of management of Indian AMC business by foreign companies has not always been smooth. In the past few years, foreign entities like Morgan Stanley, ING, PineBridge, Deutsche, Goldman Sachs, JP Morgan, and Black Rock have exited the mutual fund business after being in operation for several years.

Therefore, it remains to be seen if Blackstone will remain committed to Indian AMC business for the long haul, if and when it receives SEBI's approval. A stable fund management team is important for the smooth management of business operation and preservation of investors' hard-earned money.

What should investors do in the event of change in management?

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 assesses both quantitative and qualitative parameters, 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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