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[财经英语角区] 【金融市场】High costs drive foreign asset managers from India [推广有奖]

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william9225 学生认证  发表于 2017-4-23 00:44:57 |显示全部楼层 |坛友微信交流群
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High costs drive foreign asset managers from India
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International fund houses look for more appealing opportunities elsewhere in Asia

APRIL 22, 2017 by: Aliya Ram
When India woke up on November 8 last year to find 86 per cent of its banknotes had been banned overnight by the prime minister, asset managers were among the few that found immediate cause to celebrate.

“We are likely to get significant capital inflows,” said G Pradeepkumar, chief executive of Union Asset Management, the investment arm of India’s seventh-largest bank, shortly after the currency overhaul was announced.

He predicted a Rs1tn ($15.5bn) or 5 per cent boost to the industry’s assets under management as a direct result of demonetisation.

Aashish P Sommaiyaa, chief executive of Motilal Oswal, the boutique investment house, added at the time: “The structural decline in interest rates and an overhang on property and gold post the cash ban will make capital markets, and mutual funds in particular, much, much more attractive.”

Their optimism stemmed from the belief that as India’s 1.3bn-strong population moves away from its traditional preference for saving via gold and property, opportunities would open up for the investment industry. Government pressure on the population to open bank accounts is also expected to accelerate growth of the domestic asset management market.

Despite these potential boosts for the industry, most asset management executives and analysts believe the new economic environment is unlikely to stop the exodus of foreign investment houses from India that has gathered pace in recent years due to concerns about high costs and low profitability in the country.

In August, JPMorgan Asset Management, the investment arm of the US bank, became the seventh international asset management company to leave India. It sold its business to Edelweiss Financial, a domestic competitor, nine years after it entered the market.

One executive at a large global asset management company, which sold its Indian business within the past three years, says: “We took a calculated view that it was a business that we were not going to be successful [in]. The internal decision was that we were not ready to grow at that time.”

Goldman Sachs, Morgan Stanley and Deutsche Bank have also sold their asset management businesses in the country over the past four years after entering optimistically less than a decade ago. PineBridge Investments and Fidelity International, the independent asset managers, have similarly quit the Indian market. All five companies declined to comment for this piece.

Daniel Celeghin, head of wealth management strategy for Asia-Pacific at Casey Quirk, the consultancy, says a sluggish business culture and regulations on foreign exchange and investing abroad can make running an investment company in the country difficult. “When western [asset management] companies have attempted to do business in India or gone into business in India, they have found it not so difficult to get in, but very time consuming to manage,” he says.

Research from Casey Quirk indicates there are more appealing business opportunities elsewhere for international asset managers looking to expand in Asia. The consultancy this month predicted that only $2.2bn of revenues will be added to India’s asset management industry by 2021, significantly below the $63.1bn it predicts will be added in China.

Mr Celeghin says that, for now, India’s larger neighbour remains more attractive for companies trying to make money quickly. “The India story is much more about potential, whereas in China there is real money. If your horizon for the investment to pay itself off is under five years, then China is much more compelling.”

In India, despite household savings rates as high as 18.7 per cent of gross disposable income, according to central bank data, half the population still do not have basic bank accounts. Those that do invest in funds rely on powerful financial advisers who receive commissions for recommending products.

As a result, asset managers say that staffing and distribution costs are significantly more expensive than elsewhere in the world as companies are forced to market their funds heavily to investors or strike up costly relationships with financial advisers.

In 2012, the local industry body for asset managers, the Association of Mutual Funds in India, introduced requirements for its members to pay 2 basis points of their fees towards educating investors, in an attempt to enable them to spot the best-performing funds rather than those paying the highest commissions.

“It is very important to operate the business while understanding local costs and revenues,” says Sanjay Sapre, president of India for Franklin Templeton, one of the few foreign asset management companies to have built a large presence in the country. “Well over half of asset managers are profitable here, but profits as a proportion of assets under management range from as low as 2 per cent to as high as 30 per cent.”

Another significant challenge for foreign investment companies is reaching investors based beyond the country’s largest metropolitan areas. Investors in the largest 15 cities account for around two-thirds of the industry’s Rs18.3tn ($22bn) of assets under management, according to Morningstar, the data provider.

Industry assets are concentrated in the hands of a small number of local institutions with ties to India’s largest banks and industry conglomerates, most of which have household-name status among domestic investors. India’s largest five fund companies, HDFC Asset Management, ICICI, Reliance Capital, Birla Sun Life and UTI, collectively manage half of the industry’s assets, according to AMFI.

Sundeep Sikka, chief executive of Reliance Capital Asset Management, the investment arm of a conglomerate chaired by Indian business magnate Anil Ambani, says: “Indians are very careful about their savings and draw comfort from the mother brand.”

Mr Sikka, whose company bought the Indian mutual fund business of Goldman Sachs in 2016 for Rs2.4bn, adds: “The way you have to operate in this country is very difficult.”

Nonetheless, domestic companies that bought asset management businesses from departing foreign investment houses are optimistic about the impact of India’s next wave of financial reforms, as Narendra Modi, the prime minister, pushes forward an agenda to increase digital payments and bank account holdings.

Mr Modi’s decision to demonetise widely used Rs500 and Rs1,000 notes last November was seen as a fillip to asset managers who would stand to benefit if the population is weaned off banknotes and opens bank accounts.
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Kaustubh Belapurkar, director of fund research at Morningstar India, adds that Mr Modi’s anti-corruption message — the move was billed as a crackdown on the untaxed “black money” that exchanges hands in banknotes — would also reduce investments in gold and property, which are often used to launder money.

“We see it as a move that will help funds get more money, because if people are paying tax then they will stop going to real estate and gold and think of other investments,” he says.

According to Nitin Jain, chief executive of wealth management at Edelweiss, a related decision to roll out a biometric identification system known as “aadhaar” and to simplify the nation’s morass of taxes, will boost the industry in the future by improving transparency and making Indian capital markets fairer.

However, Mr Jain adds that there is still a long way to go before India’s asset management industry becomes larger and more profitable.

“When people are struggling to make ends meet, investing in mutual funds is not the first thing on your mind when you wake up in the morning. But the rate of growth [in assets under management] is very high, so there are two very opposing forces at play.”

Like many in India’s asset management industry, he believes that building a business in India today will allow investment companies to capitalise on the industry’s inevitable growth in around 10 years.

A Balasubramanian, chairman of AMFI and chief executive of Birla Sun Life Asset Management, the country’s fourth-largest investment house, adds: “Asset management is at an inflection point today in India. The challenges for foreign investors is their own mindset.

“They should look at India with a 10-year or 20-year industry view. If they came in here with a short-term view, then absolutely no, [they will not succeed].”
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