In June 2020, I had mentioned in my article that L&T is looking to sell its mutual fund business. Earlier reports suggested that Private Equity firm Blackstone was a top contender to buy L&T mutual fund.
It is now clear that HSBC Asset Management (India) Pvt. Ltd will acquire L&T Investment Management Ltd. , which is the investment manager of L&T Mutual Fund. As per the agreement, HSBC AMC will acquire 100% equity shares of L&T Investment Management Limited, a wholly-owned subsidiary of L&T Finance Holdings Ltd. for an aggregate purchase consideration of USD 425 million (approx Rs 3,200 crore).
L&T Finance Holdings will also be entitled to excess cash in L&T Investment Management until the completion of the acquisition. The transaction is subject to the requisite regulatory approvals. Both L&T Investment Management and HSBC AMC will work to ensure that there will be continuity of services to their investors and counterparties in the interim.
Why is L&T Mutual Fund selling its business?
The divestment of mutual fund business is part of L&T Finance Holding’s drive to unlock value from its subsidiaries to strengthen its balance sheet.
Mr Dinanath Dubhashi, Managing Director & CEO, L&T Finance Holdings commented, “The transaction with HSBC is in line with our strategic objective of unlocking value from our subsidiaries which will help us to strengthen our balance sheet for our lending business. When seen alongside the recent capital raise it provides us with enough ammunition to increase the pace of retailisation in our lending portfolio, which is one of our long-term goals.”
He further added, “Over the past 10 years, L&T Mutual Fund has garnered the trust of stakeholders across the spectrum, backed by steady and stable performance. The journey from an AUM of a few thousand crores to over Rs. 80,000 Cr this year speaks of the strength of the L&T Brand.”
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.
L&T Mutual Fund has an AUM of around 77,765 crore as of November 30, 2021, which makes it the 14th largest AMC in India. The AMC has 54 open-ended schemes, which includes 12 equity schemes constituting around 33,506 crore of its total AUM.
How will the acquisition benefit HSBC Asset Management?
HSBC Mutual Fund ranks 23rd with assets of Rs 12,323 crore, of which equity schemes account for Rs 4,155 crore.
According to a press release by L&T Finance Holdings, the acquisition of L&T Investment Management is in line with the strategic growth plans of HSBC in India. HSBC stands to gain from an experienced team, diversified assets, a strong retail customer base, and the vast geographical reach that L&T Mutual Fund has built over the years.
The press release further stated that L&T Mutual Fund has an established and well-diversified distribution channel mix of Banks, Private Wealth Firms, National Distributors and Mutual Fund Distributors (MFDs) across India. Hence, with the merger of operations of L&T Investment Management with that of its existing asset management business, HSBC intends to grow its business and assets in India.
What should investors of L&T Mutual Fund do?
HSBC is one of the world’s largest banking and financial services organisations. However, many of HSBC AMC’s schemes across categories have not fared well on risk-reward parameters. Meanwhile, several schemes of the AMC do not have a long term track record, having been recently launched. On the other hand, L&T Mutual Fund’s performance across various categories has been below average in the last few years.
It remains to be seen if the growth in asset size, wider distribution network, and larger investor base post acquisition of L&T Mutual Fund culminates into improved performance of HSBC Mutual Fund schemes.
If you are an investor in any of these schemes you need to keep a close watch on its performance post the acquisition. Consider exiting the schemes if they show extended bouts of underperformance compared to the benchmark and the category peers.
Moreover, some schemes of L&T Mutual Fund are likely to be merged with the schemes of HSBC AMC and may undergo changes in fundamental attributes. If the merged scheme follows a more aggressive/conservative investment approach than the current scheme and is no longer in congruence with your risk profile, or if the investment objective of the merged scheme does not align with your own investment objective, you can consider exiting the scheme during the free exit load period.
To conclude
It is important to understand the investment philosophy of the fund house and the investment processes they follow. Only process-driven fund houses can give you consistent performers over the long term.
Further, before making any investment decisions evaluate your investment objective, risk appetite, and investment horizon to select the most suitable scheme that scores well on quantitative as well as qualitative parameters.
This article first appeared on PersonalFN here
