KKR-backed Avendus Capital joins race to acquire IDFC Mutual Fund

Global private equity KKR-backed Avendus Capital has thrown its hat in the ring to buy IDFC Mutual Fund, said two people in the know.

Avendus, which has diversified offerings across wealth management, alternative asset management and structured credit, was acquired by KKR in 2015. In 2017, it got fresh capital from KKR, as well as new investors Gaja Capital, a provider of growth capital to entrepreneurs, and Yogesh Mahansaria, an entrepreneur who founded and sold Alliance Tire Group.

Interestingly, KKR is understood to have taken a stake in HDFC MF ahead of its much-awaited Initial Public Offer (IPO) of equity. According to sources, KKR acquired 1.44 million shares worth over Rs 1.5 billion from a number of distributors and financial advisers who got a pre-IPO placement by the fund house in April.

“We do not comment on market speculation,” said Avendus in an e-mailed response to a query from this publication. IDFC MF declined to comment.

PE firms buying stakes in insurance and mutual funds is likely to pick up pace, said experts. Late last year, the Insurance Development and Regulatory Authority of India cleared a proposal for allowing PE funds to become promoters of unlisted insurance companies, through Special Purpose Vehicles with a lock-in period of five years.

BlackRock is also reportedly among the two front runners in the race to buy IDFC MF. BlackRock, the world’s largest investment management firm, had recently announced its intention to part ways with joint venture partner DSP Group. It held a 40 per cent stake in DSP BlackRock Investment Managers, among the top 10 fund houses in the country.

“BlackRock remains deeply committed to India and we look forward to having a continued positive impact on the asset management industry in the country,” Laurence Fink, chairman and chief executive of BlackRock, had said irecently, The company could not be reached for this report.

With total assets of about Rs 700 billion, IDFC MF is currently ranked 12th in terms of the assets it manages, shows data from the Association of Mutual Funds in India. According to earlier reports, the asset management company was looking at a valuation of Rs 40-45 billion for the fund house.

IDFC MF has predominantly been a debt fund house but has been adding equity assets over the past few years, said experts. “While it has a reasonably strong management team, it is weak in distribution,” said an MF official.

Historically, deals in Indian asset management have happened at five to six per cent of the assets under management (AUM). Arriving at reasonable valuations could prove tricky, considering the exponential growth in fund AUM in the past two years. Experts say the MF sector's assets have grown at a compounded annual rate of 25-30 per cent in the past three years. The profits of large-sized fund houses are expected to grow at a fast clip as assets swell and fixed costs remain the same.

“The current (IDFC) management will ideally want the buyer to be a new player or a private equity firm. In this way, the existing AMC team remains intact and issues of integration are taken care of,” said a person on condition of anonymity.

MFs have garnered record assets in the past year, with average monthly inflow of Rs 40-60 billion through Systematic Investment Plans. The sector has doubled its assets in the past three years, with overall AUM over Rs 22 trillion as on end-May.