In spite of the AUM (assets under management) rising by over 26 % in the MF (domestic mutual fund) sector last year, it has been noted that a lot of foreign fund houses are closing shop in India and opting for exits. This can be reiterated by the most recent exits by renowned firms like ING Mutual Funds, Morgan Stanley and PineBridge, who have sold off their MF business to local Indian companies.
Possible reasons for these exits
A number of factors have been cited as the main reasons for these exits. Among these are the requirements for new capital back home as well as the slowed pace of the developed market. Some also attribute these exits to the failure of these global companies to do effective business in India. The foreign fund houses find it hard to understand and perform according to Indian market dynamics. Instead of focusing on distribution and retail investors, these fund houses focus more on institutional businesses, which unfortunately, did not provide them with high margins or results.
Where foreign fund houses lack
Brand connect is considered as a very important factor to succeed in a fund management business in a country like India where trust plays a huge role. The reason why players like Reliance MF, SBI MF, Birla SunLife MF and HDFC MF, etc. are able to shine in Indian markets is because they have influential connects with established financial institutions and banks in the country. In addition to increasing their brand value, this connect will help them reach out to the masses in a more efficient manner.
Foreign fund houses need to understand that they would need the correct balance of brand name, performance and people support to succeed in Indian markets. A lot of these companies however, are yet to crack this code and end up playing second fiddle to domestic players.
Another area where foreign fund houses seem to lack is in building equity assets. A right mix of equity to debt assets is considered necessary for success, and this can be achieved only via a good distribution network. Together with high equity, this will yield profitable results. And that is one thing the majority of foreign fund houses can’t seem to get right.
To top it off, the decision to increase the minimum net worth to Rs 50 crore by India’s Securities and Exchange Board has urged many small entities to rethink their investment options in India while their sponsors have stopped putting money into businesses which don’t yield profitable returns.
There are currently 43 fund houses in India. However, this number will likely decrease to 25 or less within the next five years as more and more foreign fund houses choose to move out of the country.
Summary
Many foreign fund houses are exiting India. Reasons like increased capital investment back home, reduced brand connect and imbalance between equity and debt assets are considered to cause these exits.
