'T Rowe Price is not for calling shots at UTI'

Q&A: Edward C Bernard, Vice Chairman, T Rowe Price

T Rowe Price Group Vice-Chairman Edward C Bernard, who is in India to sign the deal for acquiring 26 per cent stake in UTI Asset Management Co, insists that the two fund managers have a similar perspective on most issues. The third-largest listed US asset manager by market capitalisation with $366 billion under management, says it will let the present management run the company the way it wants, though the plan is to collaborate on products and assets in the long run. In an interview, Bernard tells Chandan Kishore Kant and Sidhartha that T Rowe Price wants to increase its stake to around 50 per cent in the years ahead. Excerpts:

 

You are now the largest shareholder in UTI and under the Indian laws, you are the only shareholder enjoying a veto power. Basically, would you be calling the shots now?
I would look at it this way. From the corporate governance stand point, it gives us certain rights. But the reason why we are collaborating with UTI is because we think it’s a well-run company. We do not pretend to think that we will tell the present management how to run the company.

There is a perception that you managed to clinch a good deal to gain a strong foothold in India at a low valuation.
It's very difficult for an asset manager to discuss valuations. The commonly used matrix is a percentage of assets under management, which is a particularly confusing matrix because the value varies so much with the business proposition and the asset mix. The discussions with UTI, that went on for several months, were more about the long-term strategic alliance. We had broadly agreed on the price pretty early in the process. In course of the negotiations, it looked expensive or cheap, depending on the movement in the markets.

How do the valuations compare with other markets?
I have seen deals at 2 per cent and I have seen deals at 12 per cent. It depends on the circumstances and the type of assets.

What’s going to changes at UTI apart from the constitution of the board?
Yes, we will see two new board members. What else will change? You should ask UK Sinha. Over time, you will see the collaboration of a leading international asset manager and a leading Indian asset manager. The UTI management knows far more of the Indian market than we do. We think we know a fair bit on managing growth from small to a large global asset manager. Because we are larger, we have got more resources and capabilities, and we can share it with UTI. One of the things that our technology teams are already talking about is some measures to be taken about UTI’s huge client base of 10 million. Some of the things have to do with data management. Till a few years ago, T Rowe Price also had lots of accounts but not much information on these accounts. From the range of capabilities that we have, some of it will be helpful and relevant to UTI.

Will you get your partners, say Citibank, to sell UTI products overseas? Will you also look at raising more funds from India using the UTI network?
Yes, over a period of time. Some are easier than the others. For example, we have already started introducing UTI to some of our large intermediaries. We have a lot of experience with Luxembourg-based funds and UTI has some funds invested in Mauritius. It is interested in finding out whether there are some benefits in having some similar funds. Our collaboration will be helpful, since we understand the regulatory and legal structure and know how to navigate through this. Our global head of equities was here last week to familiarise with investment professionals here. You will see more and more collaboration among the investment organisations. As that happens, there will be more sharing of ideas. As we get to know more of one another, we will rely more on one another for assets. In the long run, there will be collaboration on the products side too.

Will you route all your investments into India through UTI?
Right now we do not offer an India fund. The Asian research coverage is based out of Singapore. We have a very successful emerging markets debt strategy, but we have been covering Asia out of London and Baltimore. These will continue. Last week’s visit also saw some joint company visits. Over time, they will start collaborating. We do not have a current schedule for an India fund, but we have agreed that if we do, UTI will manage it.

Are you also looking to invest in UTI Ventures and the infrastructure fund floated by UTI? Is that also part of the deal?
It’s not a contractual obligation, but is part of the collaboration. The infrastructure team has already visited London and Baltimore. They have been marketing it to an Indian audience and we are getting our expertise to market it to investors with whom we have a relationship. We are also looking to invest, but that will be in the fund. There is a discussion going on right now, but I do not know how much will be invested.

Till a few years ago, UTI was the largest fund house, but it has slipped to the fourth slot now. Do you want it to be back at the No 1 slot?
We have never been motivated by size. We do not pursue growth for growth sake. Growth is a natural byproduct of a job well done for clients. It’s important to stay in the top leadership tier, but it does not particularly matter if you are No 1 or No 4. Our counsel to UTI will be to focus on being the best asset manager and let size take care of itself.

Do you want to be a majority shareholder?
There is no schedule for this. But our hope and expectation are that we will increase our stake over time. It’s interesting that in India you have this whole issue about public sector status which can be a disadvantage in terms of government pension and some business. There may be some evolution in those rules, but I can envision ourselves getting to something that’s near 50:50. Whether that’s 49 or 51 per cent depends on how the rules work.

The financial markets have seen a huge rally in the last nine months, prompting some to say that there is a bubble building up. Do you share that worry?
I did not grow up on the investment side. But broadly speaking, our investment team is largely calm.

Your Chairman and Chief Investment Officer Brian Rogers said in a recent interview that he was not very comfortable with the rise in the Chinese stocks. Will that translate into more funds flowing into India?
You should ask Brian on the first part. But if people think that China is overvalued, then it’s logical that money will flow into India. The world has so far focused on Bric countries. There is a durable interest in the long-term investment opportunities in India. To the extent that some players in the market think they can play off valuation in one market versus another, they may play that game. We keep an eye on something like that, but we tend to focus on fundamentals, both in the market and the companies. We don’t think anyone can effectively time the market.

Is there a strategy at the group level to increase the share of Asia overseas business?
We do not set such objectives. I do not have the numbers on how much has been invested in India or Asia. But 11 per cent of our clients are outside the US. That number, which was zero eight years ago, will continue to grow.

What are the gaps that need to be plugged in the Indian market?
The key issue right now is that the industry needs to adapt to the new load structure. In doing that, in the long term, the regulator has got its eyes set on shaping the market in a way that it would be most worthy for investors. But it’s done in a way that it will create disruption in the short term. There is a broad education process that is required, since you have a very high savings rate but only a small proportion is invested in the financial market.