DSP parts ways with BlackRock, to buy 40% stake in MF venture

Hemendra Kothari-led DSP group will buy US-based asset managers minority stake

US-based BlackRock and Hemendra Kothari-led DSP group have ended their mutual fund (MF) joint venture DSP BlackRock Investment Managers. Under an agreement announced on Monday, the DSP Group will buy the 40 per cent stake held by BlackRock in the venture, which manages and markets a range of co-branded MFs in India. 

“The sale is expected to complete, subject to regulatory approval, once naming transfers and investment scheme unit holder communications are finalised,” BlackRock said in a release.

The valuation for the deal has not been disclosed. It is also not clear if DSP and BlackRock will get into a non-compete agreement after the split. Historically, deals in the Indian asset management space have happened at 5-7 per cent of AUM, implying a deal size of Rs 40-60 billion. 

However, DSP could have paid a higher amount considering the exponential growth of the mutual fund sector in the past few months.

DSP Group is one of the oldest financial services firms in India. BlackRock is the world’s largest asset manager with over $6 trillion in assets under management (AUMs) as of December 2017.

DSP BlackRock is among the top 10 fund houses in the country, managing assets worth about Rs 860 billion as of March 2018. 

“We embarked on a journey together nearly a decade ago and have built an institution with solid processes and systems that will thrive and stand the test of time,” said Kothari, chairman of DSP Group in a release. 

Sources had earlier told Business Standard that BlackRock is an aggressive player globally and may not be content with remaining a minority partner for long, especially considering the pace of growth clocked by asset managers in India.

“BlackRock remains deeply committed to India, and we look forward to having a continued positive impact on the asset management industry in the country,” said Laurence Fink, chairman and CEO of BlackRock.

In 1995, DSP entered into a JV with Merrill Lynch to form DSP Merrill Lynch with presence in investment banking, broking, and asset management. DSP exited its stake in broking and investment banking JVs in favour of Merrill Lynch but retained the mutual fund stake. After BlackRock acquired Merrill Lynch's asset management business, the fund house was renamed DSP BlackRock Investment Managers in 2008.

The fund house has seen a spate of exits in the past few months, with around half a dozen of these people being those who had spent more than a decade with the firm, said sources. President and CIO S Naganath, for instance, quit in May last year after 15 years at the firm. Dhawal Dalal, another old hand, had quit in July 2016.

The fund house's equity assets grew 28 per cent in the last financial year to Rs 317 billion; lower than the industry average of 34 per cent. Overall assets, however, grew 26 per cent, higher than the industry’s 22 per cent growth.

The industry has doubled its assets in the past three years, with overall AUM totaling over Rs 21 trillion as of March 31, 2018.