Late afternoon yesterday, I got to see wire reports about the sewing up of the sale of Fidelity's MF business in India. There have been plenty of media reports since the reports first broke in about the imminent sale. The usual hyperbole was there in many cases. Some even went to the extent of saying that this development was a result of Sebi's numerous regulatory changes in the MF business while some focussed on Fidelity's "high costs". To me some other aspects are noteworthy.
First, Fidelity is not exiting India as some think or at least from what I understand. In India, they have about 10,000 employees in various functions such as global research support. It is only exiting the MF business after revaluation of its business. I expect most people in its Bangalore and Gurgaon offices to keep working. Second, unlike Indian businesses, large global corporations enter, exit and re-enter businesses in a particular country. We now have an example of at least one foreign player which has re-entered the MF space. So, how about things like costs and the so-called regulatory squeeze. To really appreciate the realities, one needs to step back a little from the picture to get a better view. The Indian asset management business or shall we say the MF business has never been able to get the scale it needs to reduce costs. Is it their fault? Perhaps partly. But regulations have been a constraint. For instance, if AMCs are allowed to manage assets of insurance companies instead of insurance companies having a separate set-up for them a lot of benefits of economies would have accrued.
Next, if pension reforms had taken off instead of it still being discussed in seminars, the critical mass of assets would have given MFs the benefits that could have trickled down to their costs. In this episode, let's try to understand one more thing. Outfits like Fidelity didn't really come to India to be in the MF business. Their eyes were on the the pensions business. Top AMCs across the world focus more on pensions because that is where you get the scale and the long-term money. You don't get people--both corporates and individuals--who are moving in and out endlessly giving the fund managers and AMCs nightmares managing the investments. One can argue that AMCs could open branches across India and reach out to the people. While this can be done imaginatively but the ground reality is that this expansion is often not justified as experience of top AMCs indicate that most of their businesses gets generated in large cities. So beyond a point you can't justify the expenses.
To be honest, I will miss Fidelity for three reasons. First, the way they went about their business with a long term view. It was refreshing to see their retail focus. The had more equity assets than debt ones with the latter typically coming to AMCs from corporates. Second, they didn't join the thugee party of launching one scheme after the other with little changes in them, a norm till recently to raise fresh money and keeping the distributors happy. Most importantly, some of their schemes were quality offerings.
It is clear from this latest episode, that under the present circusmtances that there are too many AMCs and schemes keeping things murky for the investors. A consolidation may not be such a bad thing for the investors as long as their interests are protected and for companies losing money. Now, have I just lost some friends in the industry by saying that?
First, Fidelity is not exiting India as some think or at least from what I understand. In India, they have about 10,000 employees in various functions such as global research support. It is only exiting the MF business after revaluation of its business. I expect most people in its Bangalore and Gurgaon offices to keep working. Second, unlike Indian businesses, large global corporations enter, exit and re-enter businesses in a particular country. We now have an example of at least one foreign player which has re-entered the MF space. So, how about things like costs and the so-called regulatory squeeze. To really appreciate the realities, one needs to step back a little from the picture to get a better view. The Indian asset management business or shall we say the MF business has never been able to get the scale it needs to reduce costs. Is it their fault? Perhaps partly. But regulations have been a constraint. For instance, if AMCs are allowed to manage assets of insurance companies instead of insurance companies having a separate set-up for them a lot of benefits of economies would have accrued.
Next, if pension reforms had taken off instead of it still being discussed in seminars, the critical mass of assets would have given MFs the benefits that could have trickled down to their costs. In this episode, let's try to understand one more thing. Outfits like Fidelity didn't really come to India to be in the MF business. Their eyes were on the the pensions business. Top AMCs across the world focus more on pensions because that is where you get the scale and the long-term money. You don't get people--both corporates and individuals--who are moving in and out endlessly giving the fund managers and AMCs nightmares managing the investments. One can argue that AMCs could open branches across India and reach out to the people. While this can be done imaginatively but the ground reality is that this expansion is often not justified as experience of top AMCs indicate that most of their businesses gets generated in large cities. So beyond a point you can't justify the expenses.
To be honest, I will miss Fidelity for three reasons. First, the way they went about their business with a long term view. It was refreshing to see their retail focus. The had more equity assets than debt ones with the latter typically coming to AMCs from corporates. Second, they didn't join the thugee party of launching one scheme after the other with little changes in them, a norm till recently to raise fresh money and keeping the distributors happy. Most importantly, some of their schemes were quality offerings.
It is clear from this latest episode, that under the present circusmtances that there are too many AMCs and schemes keeping things murky for the investors. A consolidation may not be such a bad thing for the investors as long as their interests are protected and for companies losing money. Now, have I just lost some friends in the industry by saying that?
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