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Blackstone frontrunner for Rs 3,200 crore L&T Mutual Fund buy


Private equity giant Blackstone is closing in on the acquisition of L&T Mutual Fund, but the deal closure would hinge upon approval from the capital markets regulator, which generally frowns upon private equity ownership of mutual funds.

Both sides are currently in “exclusivity” to continue bilateral negotiations that are believed to be primarily focussed on valuations, said a person with knowledge of the development. Blackstone, which lost out to PAG in the race to buy Edelweiss’ wealth management business about 10 days ago, has offered to pay not more than Rs 3,200 crore, or around 5% of L&T Mutual Fund’s total assets under management. L&T Finance, which owns the mutual fund business is believed to be expecting around Rs 4,000 crore.

The move is part of L&T Finance’s drive to monetise non-core businesses. An L&T MF spokesperson declined comment and Blackstone did not respond to an email requesting comment.

Market experts believe Securities and Exchange Board of India’s (Sebi) approval might prove to be a problem. “Limited life funds are not allowed to own mutual fund AMCs in India by the market regulator,” said Sandeep Parekh, managing partner, Finsec Law Advisors.

Concerns over Stable Capital

“Hence it is not easy for private equity funds to acquire any such businesses,” he said. Most private equity funds are raised for a limited period (not more than seven to nine years) and hence they cannot provide stable capital, according to the regulator.

Sources say Blackstone, the world’s largest private equity firm, has been arguing that the regulator had in the past blessed its real estate investment trust – which is also a deposit taking listed vehicle. Blackstone would also argue that investment in one fund can be flipped to another fund after limited partner approval and that the chances of long-term capital drying up are not credible.

L&T Mutual Fund is India’s 12th largest asset management company with assets under management (AUM) of Rs 62,289 crore as on July 31, 2020. The fund has seen a 16% decline in its AUM from January when it was Rs 74,052 crore, due to redemption pressure.

Started in 1997, the mutual fund business of the group has grown both organically and inorganically. It acquired DBS Cholamandalam in 2009 and then Fidelity’s mutual fund business in 2012.

The fund house manages Rs 26,891 crore in equity schemes, which is about 43% of its total assets under management. Its debt and hybrid AUM as on July 31, 2020 was Rs 27,896 crore and Rs 7,502 crore, respectively.

L&T Financial Services Ltd., the financial services arm of the conglomerate, revived its plans to sell the company and monetise its non-core businesses three years after shelving plans to sell a partial stake in the company in 2017. Earlier this year, the company appointed investment bank JP Morgan to look for buyers. Even this time around, there have been several attempts to conclude the sale but the ongoing Covid-19 pandemic and the sectoral headwinds have made closure challenging.

FY20 has been a challenging year for the whole industry due to regulatory changes, liquidity crisis and enhanced volatility in the market. L&T MF’s average AUM in FY20 remained flat compared with FY19 figures though the average AUM of the industry registered a growth of 11% in FY20. Its market share too declined from 2.9% in FY19 to 2.63% in FY20. Soumendra Nath Lahiri, who was managing most big equity and hybrid schemes of the AMC, resigned as the CIO in November last year.

L&T MF





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