According to a statement from L&T, the company has “executed definitive agreements” to purchase both FIL Fund Management Private Limited (Fidelity AMC) and FIL Trustee Company Private Limited, subject to regulatory approvals.
Fidelity AMC, which was founded in 2004, manages the 15th largest mutual fund in India and has what L&T describes as a “robust" equity-orientated franchise, with access to high net worth individuals and a strong systematic investment plan (regular savings) portfolio.
Its equity assets are the tenth-largest in India, L&T said, giving it a market share of 3.1%. The Fidelity equity fund range has performed well, it added, allowing the company to win the Lipper award for Best Equity Fund House over three years, in 2011.
The acquisition of the Fidelity business will give L&T scale and takes the company a step closer to being “among the top players in the Indian mutual fund industry”, according to its chairman and managing director, Y M Deosthalee.
N Sivaraman, the firm’s president and whole-time director, added: “We see tremendous complementary strengths between both the mutual funds. The strong equity focus of Fidelity’s Indian Mutual Fund, when combined with L&T Mutual Fund, results in a balanced asset base.
“The size of the combined entity together with the backing of the ‘L&T’ brand would provide an optimal platform to improve margins and grow profitably.”
The company said it expects a “smooth integration” of the Fidelity business, given the shared bottom-up, research-driven investment philosophy.
L&T established a presence in the mutual fund industry through the acquisition of the fund business of DBS Chola in January 2010. Since then, the company said, it has grown its total average assets under management at a compound annual growth rate of more than 33%.
A statement released by Fidelity said the combination of the two operations later this year will create the 13th largest company in India by assets under management, with a 2% market share in mutual funds and an “evenly-balanced” business in equities and fixed income.
Despite the sale, the firm said it will retain a substantial presence in India, through its 1,500-employee customer services and technology centre in Gurgaon, near Delhi, and Fidelity Growth Partners India, its private equity arm. It will also keep an equity research function in Mumbai, to support the $3.8bn in Indian equities it manages on behalf of its global client base.
As for the reasons behind the disposal, The Wall Street Journal reported that Fidelity’s Indian asset management business has seen annual losses since its launch.
Fidelity did not refer to the losses in its statement, but said the transaction followed a strategic review which found that its “global operating model was holding back an excellent business which could otherwise offer the same high standards of service to an expanded client base”.
The transaction will not affect any other area of Fidelity’s business, a spokesperson added, and all staff in the operations being sold will be offered roles in the combined company.
Note: this article was amended on 29 March 2012, to incorporate information from Fidelity’s statement.