Now, private equity firms can get to sponsor mutual funds

“Private Equity (PE) funds will be allowed to sponsor mutual funds subject to certain conditions. Many existing sponsors and trustees are facing liquidity crunch due to the inability of their core businesses to generate sufficient capital in the wake of the pandemic,” said one of the two people cited above.

“PE has the cash needed for the growth of the MF industry, but the life cycle of funds managed by PE funds is limited as they are obliged to return returns to their investors, which creates risk for mutual funds in which the general public invests. does.”

An entity with a 40% or more stake in an asset manager is its sponsor. At present, only banks, non-bank lenders or those having more than five years of experience in managing public funds are allowed to become mutual fund sponsors.

The new rules will potentially pave the way for global PE giants to acquire local AMCs. Mint reported in October that Blackstone was in talks to acquire L&T Investment Management Ltd., the mutual fund business of L&T.

The proposed regulations of the Securities and Exchange Board of India (SEBI) will give conditional approval to PE funds wishing to buy majority stake in AMCs.

“The new norms will require PEs to meet a certain net worth criteria, size, experience and certain lock-in criteria to be eligible to sponsor or buy out control of any AMC,” the first person said.

Also, any PE who wants to be a mutual fund sponsor may be required to give a higher value of capital to SEBI ₹100 crore, as long as they intend to sponsor or own the mutual fund business, said two people requesting anonymity.

“Furthermore, the PE fund would need to be a sponsor or owner of a mutual fund house to make it a completely separate and independent AMC subsidiary and trustee,” the first person said.

Also, a PE firm may have to follow different rules for launching open-ended and closed-ended equity-oriented schemes.

“Sebi will hold a meeting this week and prepare the draft norms for making a PE a sponsor or owner of a mutual fund,” the first person said.

Global fund managers, including PE, are eyeing a segment of the mutual fund business in India, as the equity investment culture in the country is rapidly evolving.

“The problem is that many AMCs are promoted by NBFCs and construction companies, which are the worst hit by the pandemic. The time has come for SEBI to allow PE to be the sponsor of AMC, if the regulator wants to help the MF industry grow,” said another person.

Against the backdrop of prolonged liquidity crunch in the NBFC space since the collapse of Infrastructure Leasing and Financial Services Ltd in 2018, and liquidity crunch among manufacturing sector companies along with AMC businesses, several entities are looking to sell their mutual fund business. Huh.

Mutual fund industry is expected to grow ₹34 trillion to ₹92 trillion as of FY29-30 in terms of assets, according to a report by brokerage Elara Capital.

As per the report, mutual funds are attracting higher share of money flowing into financial assets.

Gross domestic investment in MFs has grown at a compound annual growth rate (CAGR) of 27.3% over FY 2013-20. In comparison, GDP in financial assets grew at a CAGR of 11.5% during the financial year 2012-20.

The report noted that MF assets in India as a percentage of GDP are only 12%, compared to the world average of 63%, which means there is a huge headroom for growth.

Some fund houses and advisors have speculated that the industry will be affected ₹The very first 100 trillion assets under the management mark.