The Competition Commission of India (CCI) has approved the acquisition of YES Asset Management India Ltd. (YES AMC) and YES Trustee Ltd. by GPL Finance and Investment Ltd. (GPLFI). According to a press release from CCI dated May 17, 2021, GPLFI will acquire 100% equity shares of YES AMC and YES Trustee. By way of this acquisition, GPLFI will acquire YES Mutual Fund and become its sole sponsor.
Why is YES Bank selling its mutual fund business?
A couple of years ago, private lender YES Bank’s deteriorating financial position came to light. The bank found itself in troubled waters after it was reported that the lender had extended loans to companies that were unlikely to repay. Most of its loans were directed to companies in non-banking financial services, real estate, and construction sectors, which were struggling with funding squeeze.
Consequently, bad loans started to pile up over time. It did not help that YES Bank severely under-reported the extent of the bad loan. The divergence became clear only after RBI’s intervention.
But even after a year since RBI executed a rescue plan for the bank, which involved bringing State Bank of India and LIC of India, two of India’s largest public-sector units as investors, YES Bank is still grappling with a surge in bad loans… this time due to the COVID-19 crisis.
As of December 2020 quarter, the bank’s total stressed assets were at Rs 48,000 crore or 28% of advances. YES Bank is gearing to sell its non-performing assets to asset reconstruction companies (ARC) to improve its balance sheet.
It is also looking to free up its capital and concentrate on core business by selling its mutual fund business. In August 2020, YES Bank had executed a definitive agreement for the sale of 100% of the equity shareholding of YES AMC and YES Trustee, both wholly-owned subsidiaries of the lender to GPLFI (which has now received the consent of CCI).
Who is GPL Finance and Investment?
GPLFI is registered with the Reserve Bank of India as a non-deposit taking and non-systemically important Non-Banking Financial Company. It is an investment company and is primarily engaged in the business of making investments in mutual funds and providing referral and support services to White Oak Capital.
GPLFI is part of the White Oak Group, an investment management and investment advisory group founded by Mr Prashant Khemka, former CIO and Lead Portfolio Manager of India Equity and Global Emerging Markets Equity at Goldman Sachs Asset Management.
While there is not much information available about GPLFI, its holding company White Oak Capital has assets worth US$ 3.7 billion under its management. Its clientele includes institutions such as sovereign wealth funds, pension plans and endowments as well as individuals and family offices from around the world.
White Oak’s investment approach involves intensive fundamental research to assess business attributes and valuation derived from an in-house framework. It aims to generate alpha through a balanced portfolio of companies. The company seeks to invest in businesses by utilising the bottom-up approach and consciously avoid market timing, sector rotation or other such top-down macro bets.
What should investors in YES mutual fund do?
YES MF has three short term debt schemes under its offering. These are YES Liquid Fund, YES Overnight Fund, and YES Ultra Short Term Fund having a combined AUM of around 175 crore as of April 30, 2021.
All three schemes currently rank low on performance parameters compared to its peers. Moreover, these schemes do not have a very long term performance record, having been launched only around two years ago.
YES MF can benefit from the expertise and experience of the White Oak Group in the field of investment management, advisory, product development, etc. and may even enable to it compete more efficiently with its peers.
However, we cannot expect an overnight improvement in the prospects of the fund house. It will be better to assess the investment practices and the risk management process of the acquiring company before you consider investing in a scheme.
For existing investors in YES MF, switching to a well-managed fund in the respective categories that have a long term record of superior risk-adjusted returns can be a suitable option.
This article first appeared on PersonalFN here