The DSP-Blackrock split has come about because the two co-owners both wanted to own 100% of the business.
DSP Blackrock, India’s ninth largest mutual fund company, is undergoing a major upheaval in its ownership. Until now, 60% of the asset manager is owned by the DSP group, a home-grown financial services powerhouse, and America’s Blackrock, the world’s largest asset manager. Now, DSP is buying out Blackrock’s entire stake, thus taking over 100% of the ownership of the mutual fund company. Despite what it looks like at first sight, this is not the case of a foreign mutual fund exiting India. The DSP-Blackrock split has come about because the two co-owners both wanted to own 100% of the business. Since DSP was the majority stakeholder, it was able to have its way. Blackrock, for its part, is not planning to quit India—the news is that it’s looking to acquire another fund company and IDFC Mutual Fund is one possibility.
There’s nothing unusual in this news—there have so far been 25 ownership changes in India’s mutual fund companies. These have ranged from foreign companies selling the Indian mutual fund business and sailing away (Fidelity, Goldman Sachs), to foreigners buying stakes in home-grown ones (Reliance, SBI), and foreigners selling their stake to their Indian partners (DSP Blackrock, LIC Nomura). This sounds like a lot of upheaval, but it actually isn’t. However, I believe these changes are superficial, or at best preparatory, to the real upheaval that is coming. Despite managing Rs 21 lakh crore of people’s money (up 4X over the last decade), the mutual fund business in India is at a nascent stage. Over the next few years, it has the chance to see the kind of revolutionary scaling up as e-commerce or digital payments are seeing. There’s a savings revolution that India is set for, but one which will happen only if India’s mutual fund incumbents step up and shake off comfortable habits. So far, they are behind the curve.
My mind goes back to 1991, when the IPO of Mastergain, a closed-end fund from erstwhile Unit Trust of India, unexpectedly got 65 lakh applications. These were paper forms which people queued up to first buy and then deposit. Most banking, cheque clearing, record keeping statements, unit transfers, etc, were manual. A significant chunk of investors had long-running issues because of faulty records, signature mismatches and other problems. I know because I was one of them.
Even at the time, it was obvious that complete computerisation and networking was the only way forward. And yet, if you had told me back in the day that fully networked and computerised access to auto-rickshaws and taxis would arrive before it would for mutual funds, it wouldn’t even have sounded like a good joke. However, that change is coming now. The kind of push that is now coming from customers as well as regulators for end-to-end digital flow for investing means that it won’t be long before a digital savings revolution arrives.
The kind of asset management companies that are most likely to take the lead are those that have the size and also the drive to shake up the fossilised distribution conventions that seem to be holding back those that are settled at the top of the pecking order. Churn in ownership of mutual funds is undoubtedly a good sign for the future.
CEO, Value Research