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Fidelity acquistion: L&T Finance gets best of both worlds

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The acquisition of Fidelity by L&T Finance will create an entity that has a rare balance in distribution machinery, the to success in India’s Rs 6.8 lakh crore battered and bruised asset management industry.

L&T Finance had entered the asset management industry in 2010 by acquiring of DBS Chola Asset Management. True to its South Indian roots, DBS Chola was built on a distribution strategy that relied heavily on Independent Financial Advisors (IFAs). Fidelity, on the other hand, was strong with the high-end segment of foreign and private sector banks, which distribute financial products to high net worth clients.

“They are on the recommended list of Standard Chartered, HDFC Bank, HSBC and most of the top banks. The transaction, thus put L&T Finance in everybody’s list,” said Rajesh Krishnamoorthy, managing director, iFast Financial Services.

In one go, L&T Finance will take a giant leap from No 24 to No 13 overtaking fellow newcomers and and some experienced players such as LIC Nomura, HSBC and Deutsche.

Ashutosh Bishnoi of L&T finance said, “It is a significant step. The equity assets they bring in will catapult us into a different league.”

Another significant advantage brought in by Fidelity is its huge equity asset base of Rs 6,000 crore. However, the management is yet to spell out any strategy on the fund management and integration of human resources.

Sanjay Sinha, founder, Citrus Advisors and former chief executive of L&T Finance said, “Retention of these assets will be the key. In today’s environment, where the industry has lost around three million folios in a short period, fund performance needs to be maintained.”

Fidelity had strong fund management processes managed by senior professionals. Both these resources come at a cost. It is to be seen how L&T Finance handles these.

The fundhouses are tight-lipped on the valuation of the deal while informal estimates of at least Rs 550 crore were floating around. Sinha says bidding would have been aggressive. “Fidelity would not have sold at throwaway prices,” he added.

“HR integration will be another challenge,” Sinha added. L&T Finance officials indicated that the existing team could continue during the integration process. Ashu Suyash and her team will be keeping fingers crossed. Sinha had spearheaded the integration of DBS Chola into L&T Finance and later left to start his own advisory firm.

“DBS deal was critical in the sense, it gave L&T a headstart when they were outsiders who did not have a licence. This deal is different,” he said.

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