L&T Finance Holdings Limited and HSBC Asset Management (India) Private Limited (HSBC Mutual Fund) have announced that they have entered into a definitive agreement whereby HSBC asset management company shall acquire 100 per cent equity shares of L&T Investment Management Limited, which is the investment manager of L&T Mutual Fund (L&T MF), for an aggregate purchase consideration of $425 million (about Rs 3,192 crore). The transaction is subject to the requisite regulatory approvals. Both the fund houses, L&T MF and HSBC MF, will ensure that there is continuity of services to their investors and counter-parties in the interim.
“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 retaliation in our lending portfolio, which is one of our long-term goals,” says Dinanath Dubhashi, managing director and CEO, L&T Finance Holdings.
Over the past 10 years, L&T Mutual Fund has garnered the trust of stakeholders across the spectrum, backed by steady and stable performance, Dubhashi says. “The journey from an AUM of a few thousand crores to over Rs 80,000 crore this year speaks of the strength of the L&T Brand,” he adds.
L&T MF has 24 lakh active folios. A folio number is like a your bank account number. When you invest in a mutual fund scheme, a number is generated for you against your investment, which is the folio number. It is the 12th largest MF player in India and offers a basket of equity, fixed income and hybrid schemes to both retail and institutional investors. This acquisition will help HSBC MF, which stands at No.23 in terms of asset size, gain market share. It will also get access to diversified assets, strong retail customer base and the vast geographical reach that L&T MF has built over the years. “This acquisition underscores our commitment to double down on our focus to grow our materially large franchise in India. We will continue to play to our strengths and favorably grow our wealth management business in India,” says Hitendra Dave, CEO, HSBC India.
HSBC intends to merge the operations of L&T MF with that of its existing asset management business in India, which had assets under management (AUM) of Rs 11,700 crore, as of September 2021. This is about one-seventh the asset size of L&T MF.
With the merger, HSBC MF will take a big jump up from No. 23 to No. 12 (the current position of L&T MF) in terms of asset size.
How Will This Affect Investors?
When a fund house is sold or merged with another fund house, schemes of the same type of both fund houses are merged. For instance, equity funds will merge with the equity schemes of the new entity. Similarly, debt, hybrid and all other schemes will be merged with the same type of scheme of new entity. Sometimes, this leads to change in fund management and a change in the fundamental attributes of the fund. This affects the fund performance, but not always.
In this case, post the regulatory approval, L&T MF schemes will be known as HSBC MF schemes. According to sources in one of the two fund houses, the deal is that the entire fund management team will move with the schemes, which may mean that there are no major changes in fund management.
However, there will be clarity only after the approval comes through. Experts say it is too early to say anything, as the merger process will start post-regulatory approval. So, investors should remain invested but keep a tab on further developments.