Amundi buy of Pioneer makes it sponsor of 2 funds

One-sponsor-one-fund rule may set off merger as Amundi seen sponsoring two funds following buyout.

French asset manager Amundi's purchase of Pioneer Investments last month has put a question mark over both the entities' investments in the domestic mutual fund space.

Amundi, by virtue of its 37 per cent stake, is one of the sponsors of SBI MF.

Similarly, Pioneer Investments is a sponsor of Baroda Pioneer MF, with 51 per cent stake.

The global acquisition could deem Amundi as a sponsor of both the fund houses.

Regulations restrict one entity from being a sponsor of more than one asset management company (AMC).  A sponsor is an entity that, acting alone or with another body, establishes an AMC.

Amundi said it had not yet taken a decision on the Indian market.

"We are still reviewing the regulatory framework," the asset manager said in an email to Business Standard. Emails to SBI MF and Baroda Pioneer MF did not get a response. 

Amundi, which manages over $1 trillion of assets worldwide, announced it had agreed to buy Pioneer Investments for an all-cash consideration of $3.7 billion in December 2016.

Pioneer Investments is part of the UniCredit Group, headquartered in Italy, and has assets of $245 billion globally and $65.8 billion in the US as of June 30, 2016.

Amundi's buyout of Pioneer Investments could lead to three scenarios, experts said.

One, Pioneer Investments could exit Baroda Pioneer MF by divesting its 51 per cent stake to either Bank of Baroda or another investor.

Two, Baroda Pioneer MF could merge with SBI MF, with State Bank of India, Amundi, and Bank of Baroda holding stakes in different capacities. 

A merger would consolidate SBI MF's position as the country's fifth-largest fund house in terms of assets it manages.

For the quarter ended December 2016, the fund house had assets under management of Rs 1,40,997 crore, while Baroda Pioneer managed Rs 10,785 crore, data from Association of Mutual Funds in India show.

For financial year 2016, SBI MF had posted a net profit of Rs 165 crore, while Baroda Pioneer MF posted losses of Rs 5 crore. 

"A merger with Baroda Pioneer will not benefit SBI MF much, as the former has mostly debt assets, which are less sticky than equity assets," said an industry official. 

Equity assets contributed less than 10 per cent to Baroda Pioneer MF's assets as on December 2016, Value Research data show. 

SBI MF had last acquired Daiwa MF's schemes worth Rs 260 crore in 2013. 

The third possibility is of Bank of Baroda selling its 49 per cent stake in Baroda Pioneer MF to Amundi, and there is a subsequent merger of the entity with SBI MF. 

Experts widely believe that the diktat to focus on core operations and the surging strain on their balance sheets may compel a few public sector banks to reduce or sell their stake in their mutual funds.

In 2014, the finance ministry had asked public sector banks to review their exposure towards non-core operations such as mutual funds and insurance. The move was aimed at conserving capital at a time when stricter Basel-III norms were to be implemented. 

An email to Bank of Baroda and State Bank of India went unanswered. 

Interestingly, the issue of sponsors in mutual funds was one of the discussion points at a recent board meeting of the market regulator. An email to the regulator in this regard did not get a response.

UTI AMC

Promoted by public sector financial institutions State Bank of India, Life Insurance Corporation of India, Bank of Baroda, and Punjab National Bank, it is the only fund house where the market regulator has made an exception to the one-sponsor rule.