Goldman Sachs India ETF business is a good fit for Reliance Capital mutual fund

Reliance Capital Asset Management (RCAM) has acquired the mutual funds business of Goldman Sachs in India for Rs 243 crore. The twelve onshore MF schemes acquired by RCAM, with assets worth Rs 7,132 crore, will be a good fit for the company, which is the third largest mutual fund in the Indian market with total assets worth Rs 1.5 lakh crore.

The acquisition comes close on the heels of Nippon Life Insurance increasing its stake in RCAM to 49 percent from 35 percent by investing Rs 1,196 crore, taking RCAM’s valuation to Rs 8,542 crore.

Also in the fray to acquire these assets were HDFC Mutual Fund and another large mutual fund but eventually RCAM sealed the deal by paying 3 percent of the overall assets under management.

The Goldman Sachs India schemes acquired by RCAM are primarily exchange traded funds (ETFs), which includes the government’s Central Public Sector Enterprises Exchange Traded Fund. These are schemes that are a strategic fit for RCAM, which is known for its actively managed schemes that have given stellar returns over the last 20 years.

ETFs, which are passively managed, are the fastest growing financial products across the world. These products were made popular in the Indian market by Benchmark Mutual Fund whose assets were taken over by Goldman Sachs in 2011 for Rs 130 crore or 4.3 percent of Benchmark’s average assets under management of Rs 3,000 crore.

Goldman Sachs has managed to make a tidy profit by selling the assets at twice the price to RCAM or at a higher valuation. “You also need to see that we have managed to grow the assets by 100 percent”, said a person close to the development.

After taking over these assets Goldman Sachs India was able to create the CPSE ETF which was a huge success and has assets to the tune Rs 2,000 crore. The other assets include the NiftyBeES, an ETF that tracks the Nifty Fifty Index, the Nifty Junior BeES that tracks the Nifty Junior index, a bank ETF and a Gold ETF.

With these assets in its kitty, RCAM is now on a solid wicket in the ETF space. Both RCAM and ICICI Mutual Fund are competing in these low cost products where they feel that the next level of customer acquisition lies.

HDFC Mutual Fund and ICICI Prudential Mutual Fund are the top two mutual funds in the country. Along with RCAM, the three control around 40 percent of the total assets in the Indian mutual fund industry. Acquisition has become one of the routes to gather assets. In December 2013, HDFC Mutual Fund had acquired the assets of Morgan Stanley for around Rs 170 crore.