A consortium comprising Bandhan Financial Holdings (parent of Bandhan Bank), private equity firm ChrysCapital, and Singaporean sovereign wealth fund GIC has entered into a definitive agreement to acquire IDFC’s mutual fund business.
The consortium, led by Bandhan Financial Holdings, will acquire IDFC Asset Management Company (IDFC AMC) and IDFC AMC Trustee Company for a consideration of Rs 4,500 crore, which is reported to be the biggest buyout yet in the mutual fund industry. The deal is subject to receipt of necessary regulatory approvals and customary closing conditions.
The sale of mutual fund business is part of IDFC’s divestment process of non-core entities to simplify the corporate structure and unlock value for shareholders. The Board of IDFC and IDFC Financial Holding had approved the initiation of steps to divest its mutual fund business on September 17, 2021.
Established in 2000, IDFC AMC has over Rs 1,15,000 crore of Asset Under Management (AUM) as of March 31, 2022, making it India’s 9th largest mutual fund house. It manages around 40 open-ended schemes spread across equity and debt categories. Notably, IDFC AMC has made a mark with its debt schemes by investing only in high-quality and liquid securities.
According to a press release by IDFC Ltd., the agreement envisages continuity of the current management team and investment processes at IDFC AMC, which will help unitholders to benefit from consistency in the high-quality investment approach IDFC AMC is reputed for. The press release further stated that Bandhan’s brand, as well as GIC’s and ChrysCapital’s international network and experience, will aid IDFC AMC in further cementing its position in the asset management industry and propel further growth.
On the occasion of the acquisition, Anil Singhvi, Chairman of IDFC Limited, commented: “This transaction is a significant milestone in our plan of unlocking value and the consideration demonstrates strong position of IDFC AMC in the Indian Mutual Fund space. We have achieved signing within 6 months of the Board’s decision to divest, which further demonstrates IDFC Board’s commitment to consummate the merger of IDFC Limited and IDFC Financial Holding Company with IDFC First Bank. The Bandhan consortium with its strong brand and resources will further strengthen distribution of products and improving overall experience for IDFC AMC’s investors and distributors.”
Meanwhile, Karni S Arha, Managing Director, Bandhan Financial Holdings Limited, said: “Bandhan has always focused on financial inclusion and making formal financial services available to the masses. We believe that the asset management industry will be one of the fastest growing segments in the Indian financial services industry and hence has been identified as a key vertical in our future growth plans. The acquisition of IDFC AMC provides us with a scaled-up asset management platform, with a stellar management team and a pan India distribution network. IDFC AMC could benefit significantly from the Bandhan brand and continue strengthening its position in the asset management industry. Also, we are happy to partner with marquee investors such as GIC & ChrysCapital and are confident that this venture will enhance value for all the stakeholders of Bandhan and IDFC AMC.”
What should investors in IDFC mutual fund do?
Over the past couple of years, the mutual fund industry has seen several mergers and acquisitions such as Groww – Indiabulls Mutual Fund, White Oak Capital – Yes Mutual Fund, Navi Mutual Fund – Essel Mutual Fund, HSBC Mutual Fund – L&T Mutual Fund, Baroda Mutual Fund – BNP Paribas Mutual Fund, and Principal Mutual Fund – Sundaram Mutual Fund.
Some of the aforementioned mergers/acquisitions led to changes in investment strategy/styles/objectives of the merged/acquired schemes. For instance, in the case of Sundaram Mutual Fund’s acquisition of Principal Mutual Fund, certain schemes of Sundaram Mutual Fund were merged with the corresponding schemes of Principal Mutual Fund, while a few schemes of Principal Mutual Fund were with the corresponding schemes of Sundaram Mutual Fund, to comply with the SEBI circular on scheme categorization.
However, in the case of IDFC mutual fund since the acquiring company is not an AMC, there is no question of a merger or change in the investment objective of the schemes. As mentioned by IDFC Ltd. in its press release, IDFC AMC will continue with the current management team and investment processes that it currently follows. Accordingly, there is no cause of concern for investors in IDFC mutual fund and, therefore, does not warrant any portfolio action for now.
That said, watch out for any major changes in the investment strategy, investment objectives, or key personnel after the new management takes over. If you find that the changes do not align with your investment objectives and/or risk profile, you can consider looking for alternatives.
This article first appeared on PersonalFN here