India is probably the fastest-growing asset management market in the world, with the mutual fund industry’s assets under management (AUM) multiplying more than five-fold in the past decade – to ₹55 lakh crore now, from ₹10 lakh crore in 2014. Record investor additions every month helped expand the domestic industry that has emerged from the shadows of overseas funds, which had a disproportionate impact on Indian stocks since the markets were unshackled in phases through the 1990s.
This eye-popping pace of decade-long expansion, evident in the financialisation of savings in a country that had largely preferred bullion and property as stores of value, has failed to keep several global financial giants interested in holding majority stakes in the business – something that appears counterintuitive at first glance.
Nishanth Vasudevan looks at some of the reasons behind the exits of foreign asset managers from the country’s mutual fund industry:
How many foreign FIRMS HAVE exited India’s mutual fund industry in recent years?
At least 10 foreign players, including JP Morgan, Fidelity, Morgan Stanley, ING, Goldman Sachs, and Daiwa, have entirely exited the country’s mutual fund space in the past 15 years. Most of them held majority stakes in the businesses here and have entirely sold out. More recently, Invesco said it was selling a 60% stake in its domestic mutual fund to the Hinduja Group.
What prompted them to move out despite strong growth prospects?
Various firms have quit India for a host of reasons that included regulatory scrutiny, but one key and common factor has been their inability to scale businesses locally. Additionally, high costs for running the domestic operations resulted in losses piling up. For many of these companies based in the US and Europe’s richer neighbourhoods, India is not a core market and chronic losses in a non-core market did not justify commitment escalation.
Why were they unable to scale up?
Long-time India watchers say running a business in India requires a different temperament and skill. Many foreign players came to India proposing to replicate the successful strategies they implemented in various international markets to build asset management behemoths there. However, the dynamics required to scale up the business in India proved to be quite different.
What went wrong for them?
One of the biggest disadvantages most of them faced was the absence of a strong distribution network. Currently, most large mutual funds in the country are owned by domestic banks, which have the most formidable and widespread distribution networks. These foreign players found it difficult to compete with domestic bank-sponsored asset managers. Critics said global giants also did little to build strong sales channels, which required top executives to roll up their sleeves and get their hands dirty. Foreign firms could, however, not play the game the way domestic funds did because of strict compliance norms implemented by them globally. A high-cost operating structure, including hefty salaries and plush offices, did not help either because the mutual fund business is a low-margin, high-volume game.
Are there foreign firms left in India’s MF industry?
There are still many of them operating successfully here. Asset managers such as Nippon, Franklin Templeton, Mirae, PGIM, and HSBC have survived and continue to thrive. Industry officials said these fund houses have been able to hold ground because they have understood the importance of doing business the ‘Indian way’. Many others, such as Sun Life, Schroders, Amundi, and Prudential, among others, are joint venture partners with some of the top domestic mutual funds.
Are more global financial giants looking to enter India?
If industry chatter is to be believed, several overseas firms are looking to enter the domestic mutual fund industry. The list also includes some of those who exited India. Last year, BlackRock, the world’s largest asset manager, reentered the industry through a joint venture with Mukesh Ambani-owned Jio Financial. In 2018, BlackRock parted ways with Hemendra Kothari’s DSP Group. Mutual fund industry officials said most of the potential entrants want a strong domestic joint venture partner with an extensive distribution network that can harness the ordinary Indian saver’s newfound love for financial assets.
