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Seated from left to right:- Edgar Holmann, Managing Director Corporate Development - Invesco, Saurabh Nanavati, CEO - Religare Asset Management, Shachindra Nath, Group CEO - Religare Enterprises, Andrew Lo, Senior Managing Director & Chief Executive (Asia Pacific) - Invesco, Dean Chisholm, Regional Head of Operations (Asia Pacific) - Invesco
WF : Congratulations on your JV with Invesco. What were the factors that led you to consider a JV with an international player like Invesco?
Saurabh : Religare AMC started their operations in the midst of the global financial crisis in Nov 2008 by acquiring Lotus Mutual Fund. The last 4 years have been pretty eventful for us as well as the industry as a whole but there were a few key points which we wanted to achieve before considering anything new.
1) Achieving scale in the local business (which many people in industry believe is Rs. 10,000 crores AUM)
2) Achieving business profitability, which we achieved for year ending Mar 2012 - our third full year of operation
3) Performance track record of 3 years using our internal Proprietary Equity and Credit models
4) Basic groundwork including establishing the platforms for Offshore and PMS businesses (which do take 2 years in the normal course, even before sales can start).
In May 2012, when we felt we had achieved the above, we decided to see if we could approach a global player of repute and standing for a JV and help us take the business to the next level.
WF : You are a rare CEO - who first bought an AMC which was in strife and then completed the other side of the deal by selling off a slice of your combined entity to a very respected international player. What's next on the inorganic route for Religare - are more acquisitions in the pipeline?
Saurabh : Both the transactions are different. The first one was opportunistic in Nov 2008 (Lotus Mutual Fund) and because we were ready and would have launched our own operations anyways, we went ahead. The entire transaction was completed in 4 days. In hindsight, the team did a commendable job of turning around the operations and clients and distributors embraced us whole-heartedly. I feel very satisfied when I look back on that transaction.
The current transaction is a purposeful decision of complementary synergies of both partners which can propel the business to the next level. Let me explain this.
Religare AMC provides Invesco with -
Access to Indian retail markets through its presence in 53 cities Proprietary Equity Stock Selection Process and Proprietary Credit Scoring model (for debt) - this is in line with Invesco's global emphasis on investment process and philosophy Existing track record of equity, debt and hybrid funds Profitable platform (which is important in emerging markets) Established offshore and PMS vehicles
Invesco with its global presence and experience will enable Religare AMC to:
expand its retail business in India leveraging of Invesco's global strength in retail (Almost 60% of Invesco's AUM of USD 670 Bn is from Retail) procure offshore advisory mandates - clearly a "Religare Invesco" AMC name will have more resonance than only "Religare" AMC in the global market, given their standing utilise Invesco's global tie-ups with foreign banks operating in India for distribution of mutual fund and PMS products The JV will also get an opportunity to adopt best practices of Invesco in areas of investment management, risk management, distribution, compliance, performance management and human resources.
So what you see above is a good complementary fit, which should benefit the clients, distributors and therefore the AMC to move ahead.
As regards acquisitions in the future, we will continue to remain opportunistic without removing our focus on the core running business. If your core business is doing well, you will automatically be approached at various points of times with options by Investment Bankers.
WF : From your interactions with Invesco, what are the factors you believe weighed in for Invesco's decision to come to India - at a time when the industry is seeing some challenges, and to consider a JV with an established player rather than going it alone?
Saurabh : Invesco is a leading, independent global investment management firm based out of Atlanta, United States of America, with average assets under management of over USD 660 Bn, as at 30 Sep 2012 (top 15 in the world in terms of AUM). Invesco provides a wide range of investment strategies and vehicles to retail, institutional and high net worth clients spread across more than 100 countries.
Almost 60% of Invesco AUM comes from retail clients across the globe. Invesco operates in more than 20 countries and is listed on the New York Stock Exchange with a market capitalization of over USD 10 Bn and it is also an S&P 500 constituent with investment grade rating.
Invesco has a very good foot-print in Asia Pacific with presence in Japan, Australia, Taiwan, Korea, Hong Kong, Singapore and China and USD 48 bn in AUM.
India has been a key market they have been looking at, for the last 2-3 years. They have looked at a few opportunities but what worked for us, was that Invesco felt that this team has performed well in a very challenging environment and managed to grow the business profitably. There was also commonality in the Investment Process / Philosophy of both the firms, which is core to the business.
Sometimes, if JV partners have synergistic strengths, it makes sense to go the JV route than go at it alone.
WF : What can your distribution partners and investors look forward to from this JV?
Saurabh :
Better product range - both in local and global markets Better performance and risk management capabilities - which Invesco specializes in globally for their funds Being part of a larger set-up, whose core and only business is Asset Management, will give a lot of comfort to clients and investors to increase their exposure with us Increase in our reach and set-up across India and across the world
WF : Is the partnership going to focus more on selling the India opportunity overseas or on selling overseas investment opportunties to Indian investors?
Saurabh : A number of people keep asking me this question. From day one, even 4 years back, our answer has been that Religare AMC will focus on both the opportunities. Both these are separate revenue lines and we have created separate sales teams to move ahead in both these opportunities.
WF : Several game changing reforms have been implemented by SEBI. How do you see the business environment for mutual funds changing over the next couple of years, consequent to these reforms?
Saurabh : SEBI's new norms have enabled the AMCs to incentivize distributors beyond 15 cities differentially and for Religare AMC's business model where we have ground presence already in 53 cities, it will help us penetrate the market further. The biggest issue for the entire capital markets in India is the shrinking investor base and we need some drastic measures to start getting retail investors back in the market. I am hopeful that the new SEBI norms will help us penetrate further and better.
WF : How do you see distribution of MFs evolving - now that we have so many new variables to deal with including the advisor regulations, the new breed of distributors, the small town focus and direct plans - and then MFUtility which will come in next year?
Saurabh : Yes, there are a lot of game-changers which will come into force in the next one year.
More transparency from AMCs and a responsible distributor can only benefit the end investor.
My simple message is that if AMCs and Distributors can work together to increase the customer base, all other aspects like revenue pressure, margin pressure will go away. For too long has this industry focused only on a small set of investors, whose money at times keeps moving from one fund to another. Frankly the market has shrunk in the last 2 years than grown. You have 30 lakh cars being sold every year (so there is spending power and wealth being created in the Indian Middle Class) but we cannot get even 1 lakh new customers per annum to the industry, which puzzles me.
WF : What are your messages to your distribution partners as you prepare to take your company to the next level?
Saurabh : I can only thank them for getting us where we are, especially the IFA community who form almost 80% of our AUMs. They supported us as new entrants to this market and now they should get much more comfortable with a partner of Invesco's stature becoming a part of the AMC.
Our entire team, systems and processes remain the same and will only be strengthened by the partner, which should enable the distributor to sell more of our products to investors. Thank you once again.
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