Religare Enterprises (REL) is planning to buy up scores of boutique asset management companies in the US and later merge their corpus with its own expanding reach in emerging markets, with the aim of developing a $40-billion company.
Shachindra Nath, CEO of the financial services conglomerate told FE that it will allow the small AMCs to retain their investment teams for client service. A global sales and marketing team of Religare will build an overarching structure around these teams, which will span markets from Mumbai to Tokyo, under a single holding company.
?Our first target in building a global financial services company within three years is the US. By any reckoning, the US accounts for 65% of the global pool of capital,? said Nath. He added that the holding company could be listed on the New York Stock Exchange, which will give a strong degree of comfort to not only the AMCs which will come under the Religare net, but also their clients.
The holding company will be separate from the nine companies under the Religare umbrella operating in segments like brokerage, securities, insurance and venture capital. On Thursday, the Religare scrip on the BSE closed at Rs 394.20, down Rs 29.50 or 6.96% while the Sensex rose 0.88%.
In the past one and a half years, Nath and his management team have visited 500 such companies, especially on the eastern seaboard of the US. In 2010-11, Religare expects to get about $14 billion of assets under control from the planned series of buyouts.
The numbers are impressive. For comparison, total assets under management of all AMCs in India was just above $160 billion as of end-May 2010. The Religare plan will help it overcome the limitations of the overcrowded domestic market, where 43 fund houses are battling for business.
Rajesh Sennik, Strategy Practice Lead at Accenture Consulting agreed the revenue story could be ?compelling?. But he sounded a note of warning on the need to identify the toxic assets. ?Piecing together the quality of underlying assets could be a very tough call. The trick will be to mitigate the risks arising from them.?
Religare’s sales pitch is fairly straightforward. Nath said he will buy up 51-74% in these AMCs which often have very clear investment objectives. ?A 20-people set-up often manages a corpus of $8 billion and invests in only, say the top 22 listed companies in the US.? Religare will not disrupt such investment plans but only build a group and size that delivers efficiency.
Religare has partially experimented with this model with the acquisition of US-based Northgate Capital. The company is considered to be one of the leading global private equity and venture capital firms.
It has approximately $3 billion assets under management from over 400 high net worth families and individuals. It has also bought out Hichens, Harrison & Co, one of the oldest stockbroking firms in the UK.
Nath attributes Religare?s ambition to try the international markets more than the domestic market to the corporate philosophy of the group. Promoted by the Malvinder Singh-Shivinder Singh family, Religare was one of the bidders for AIG, in association with Macquarie Bank of Australia. The two have an equal joint venture for wealth management in India. Rajesh Chakrabarty, associate professor (finance) at the Indian School of Business said the ?model sounded good. For REL, it essentially allows for diversification of the India risks and for the sellers it reduces their operating costs.?
The company, which employs 8,600 as of March 2010, feels the entire corpus of offering in the domestic market cannot be replicated abroad. ?Asset management, investment banking and life insurance are three of the businesses, which we can scale up globally,? Nath said.
