Principal Financial looking to acquire AMC in India

US firm Principal Financial Group is looking to acquire an asset management company in India as it wants to scale up its fund unit operations in the high-potential market, a top executive said on Tuesday.

Merchant bankers have been told to look out for possible targets, preferably with large equity assets, Rajan Ghotgalkar, Principal’s country head for India, said. “Mandates have been given,” he added.

He said the firm was yet to finalise potential candidates for acquisition, but the time was right for inorganic growth given sharp drop in markets and an ongoing financial turmoil.

“Valuations have moderated. It’s a better time to buy now,” he added.

Principal has a mutual fund joint venture with Punjab National Bank and Vijaya Bank, managing about Rs 7,000 crore ($1.4 billion) in the 35-member industry. According to the company website, Principal Financial Service (Mauritius), PNB and Vijaya Bank hold 65 per cent, 35 per and 5 per cent respectively in this joint venture.

Since January, when the stock markets started losing steam, the Indian mutual fund industry has found itself losing their average assets under management (AAUM) every month.

Besides the negative impact of the fall on the equity market, even debt funds have suffered due to redemption pressures. In October, fund houses saw a fall in their AAUM by slightly over Rs 97,000 crore. The numbers seem worse if one considers the fall in the last six months. Between the end of May and October, the industry’s AAUM has fallen from Rs 6 lakh crore to Rs 4.3 lakh crore.

A large number of smaller fund houses’ valuations have taken a serious hit. Earlier this month, Lotus Mutual Fund, promoted by Temasek-promoted Alexandra Fund Management and Rana Talwar’s Sabre Capital Investment Holdings was acquired by Religare-AEGON, a joint venture between drug major Ranbaxy and Netherland-based AEGON group. Given there is a serious financial crisis, there are expectations of consolidation in the industry, whereby many small fund houses may have to exit their businesses by selling out to stronger players.