Cerulli Tries To Explain Why Foreign Asset Managers Face Hard Slog In India

Tom Burroughes

30 November 2015

India’s top-heavy fund management industry and an uncertain regulatory climate have encouraged a raft of non-domestic firms such as Fidelity, Morgan Stanley and Deutsche Bank to pull the plugs on the country’s investments market, according to Cerulli Assiociates.

Over the past three years, large foreign firms (others have included Goldman Sachs, KBC Asset Management and PineBridge) have spun off or closed down Indian asset management operations, although as reported here recently, US-listed Invesco has expanded in the nation.

Explaining the shift, Cerulli said the top-five asset management companies operating in India account for more than half (55.2 per cent) of the $198.5 billion of industry assets. In total, 43 asset management firms work in the Indian sector. The top 10 of these hold 77.2 per cent of assets, showing a “huge” concentration of assets among these firms.

Another headwind for foreign entrants and players in the market is regulatory uncertainty, Cerulli said. The Securities and Exchange Board of India is “taking investor-friendly steps in its attempts to increase industry reach and make mutual funds affordable. However, the distribution fraternity has been complaining over the periodic changes and increasingly stringent norms on commissions,” Cerulli said.

Its analysis of the market shows that most global firms have joint ventures with a large domestic bank or financial institution, or have a corporate brand as their sponsor. Such JVs make it easier for asset managers to reach a larger network of investors and gather assets.

“For any foreign player to sustain a presence in India over the longer term (beyond three to five years), a tie-up with a big local brand to shore up distribution capabilities, a strong long-term commitment, and patience are musts. We note that even as some players exited the country, a few others have entered through joint venture route in recent years (Nippon with Reliance and Schroders with Axis). In fact, in October Nippon Life raised its stake in Reliance Mutual, to 49 per cent from 35 per cent,” it said.