DSP Group and BlackRock, the world’s largest investment management firm, have entered into discussions to end their existing 60:40 joint venture (JV) in asset management company DSP BlackRock Investment Managers, said two people in the know.
DSP BlackRock is among the top 10 fund houses in the country and managed assets worth about Rs 860 billion as of March 2018. The DSP Group, headed by Hemendra Kothari, 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 (AUM) as of December 2017.
According to sources, BlackRock is keen on going it alone and is considering buying out DSP’s 60 per cent stake in the asset manager. “The joint venture is under review but there is, as yet, no agreement on the valuations,” said a source. In the past too, there has been a buzz around DSP wanting to buy out BlackRock’s stake in the company.
Historically, deals in the Indian asset management space have happened at 5-7 per cent of AUM. Arriving at reasonable valuations, however, could prove tricky considering the exponential growth in mutual fund assets in the past two years.
“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,” said another person.
Mutual funds have garnered record assets in the past year, with an average monthly inflow of Rs40-60 billion through systematic investment plans.
The industry has doubled its assets in the past three years, with overall AUM totaling over Rs 21 trillion as of March 31, 2018. In 2017-18, MFs pumped in Rs1.4 trillion into Indian equities, more than six times the Rs 222 billion put in by foreign portfolio investors.
It is not yet clear if DSP and BlackRock will get into a non-compete agreement after their split.
In an e-mailed response, BlackRock denied plans to buy out DSP's stake. "We do not talk on speculation," Hemendra Kothari, non-executive chairman of DSP BlackRock, said.
Kothari, who founded DSP Financial Consultants in 1975, represents the fourth generation of a family of prominent stockbrokers. 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.
“DSP BlackRock has historically had one of the strongest equity teams in the country and a strong brand recall,” said an expert. “But their limited distributor reach and lack of aggression in sales and marketing have prevented them from scaling up as much as some of their peers.”
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 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.
If a deal does materialise between DSP and BlackRock, two large fund houses can potentially see a change in ownership. IDFC, too, has reportedly begun discussions to sell its asset management company as part of the value-unlocking process for shareholders.