Entry of private equity firms in mutual fund industry trigger buyouts

MUMBAI: The entry of private equity (PE) funds in the mutual fund industry could trigger a spate of buyouts and bring smaller asset management companies under the radar of new entrants prowling for their acquisition target.

Capital markets regulator Securities and Exchange Board of India (Sebi) on Wednesday allowed PE funds to own mutual fund companies. “We may see the acquisition of smaller players by new entrants because starting from scratch is a time taking and more challenging process. PE firms typically tend to have relatively shorter time of horizon and far more focus on aggressive growth,” CEO of an asset management company told this newspaper.

Entry of these new players in the country’s Rs 41 lakh crore mutual fund industry will pose challenge for the regulators because of the short-term approach of the PE firms, which does not gel well nature of mutual funds sector.

“One of the challenges for the regulators will be that some of them (PE funds) may follow relatively aggressive growth path because these are the funds with a finite life,” he said. “Regulators will have checks and balances but realistically, exit pressure sometimes pushes companies into a mindless expansion. There is a difference between growing at any cost and growing in a sustainable manner,” he added.

The industry expects to see more innovations and new approach with entry of new players.
“Some players may choose to start from zero while some would like to acquire existing smaller players. With entry of new players, the mutual fund industry will see more innovation and new talent. Overall it is a positive development and will strengthen mutual fund industry,” said G Pradeepkumar, CEO, Union Mutual Fund.

Entry of these new players in the country’s `41 lakh crore mutual fund industry will pose challenge for the regulators because of the short-term approach of the PE firms, which does not gel well nature of mutual funds sector. Market regulator Securities and Exchange Board of India (Sebi) on Wednesday allowed PE funds to own mutual fund companies. Industry expects to see more innovations and new approach with entry of new players.