|Fixing UTI, fixing FDI|
|Tuesday, 10 January 2012 01:09|
Selling it to T Rowe Price will even enthuse investors
Like a melodramatic tragedy film, UTI Asset Management Company is dying a slow death. The decline in its rank in the list of 44 mutual funds does not even begin to tell the extent of its problems, though that it why it is ostensibly looking to appoint an interim CEO while its shareholders continue to fight over whether a professional CEO should be appointed or whether one favoured by the finance ministry should be anointed. UTI AMC owed its pre-eminence to its reach in small towns which made it almost synonymous with mutual fund exposure for the India beyond the metros—in 2003, it had around 90,000 agents compared to less than 50,000 for the rest of the industry. It helped that its quasi-public sector nature encouraged market-wary but cash-rich PSUs to do business only with it. The one year of absence of a CEO at the top has finished off both these advantages. The decline in the assets under management (AUM)—it is fifth in the league and falling further behind—also shows how much it has fallen behind the leaders in terms of mobilisation from PSUs. The two leaders, HDFC and Reliance, account for more than 25% of the total AUM, while the top four account for 44%.
This is where it gets interesting. The government is reportedly now negotiating to sell Anil Agarwal’s Sterlite the remaining 49% of Balco. Why not do the same for UTI AMC—sell the remaining 74% to US giant T Rowe Price. This will eliminate the boardroom conflict that has crippled India’s once-premier mutual fund. It will enthuse foreign investors who will once again feel India is open to business. Most important, it will remove an anomaly in the rules governing mutual funds—while no one is allowed to sponsor more than one mutual fund, this was relaxed for SBI, Canara Bank, LIC and Bank of Baroda when they each picked up a 25% stake in UTI AMC for R10 crore when UTI was being restructured after the US-64 fiasco. When they sold off 6.5% each to T Rowe Price, they got R650 crore! Selling out completely will give them handsome profits, enthuse foreign investors and remove the obvious conflict of interest in SBI/LIC/ BoB/Canara Bank being sponsors for two mutual funds—it won’t reduce the number of players since each runs a mutual fund anyway.