InvestorQ : Can you tell me about the merger of HSBC mutual fund and L&T MF being approved by SEBI just this week?
Mahima Roy made post

Can you tell me about the merger of HSBC mutual fund and L&T MF being approved by SEBI just this week?

1 month ago

In the recent week just concluded, the proposed merger between HSBC AMC and L&T Mutual Fund got the approval of SEBI. It can now go ahead with the CCI approval already coming in quite some time back. This move will create a significantly large asset management company in India, although this is more like a reverse merger since L&T MF is many times larger than HSBC MF. HSBC AMC is an indirect wholly-owned subsidiary of HSBC Holdings PLC; one of the premier investment and banking institutions in the world. The resultant entity will now be the fourteenth largest fund in India by AUM.

Let us look at the numbers to get an idea of the magnitude of the deal. HSBC Asset Management Company boasts of average assets under management (AAUM) of Rs13,620 crore. This is as per the report of AMFI as of September 2022. On the other hand, L&T Investment Management (sponsor of the L&T Mutual Fund), is much larger with average assets under management (AAUM) of Rs71,703 crore. This is also as per the September 2022 AMFI data. L&T Mutual Fund has fairly wide reach with over 22 lakh active folios (investor accounts). The combination will create an AMC with over Rs85,000 crore AUM.

What is the logic of this merger and how do the two parties stand to gain from the deal? The Indian mutual fund industry has been going through restructuring for a long time. In the last 15 years, many leading global players in the asset management industry worldwide like Goldman Sachs, Fidelity, Morgan Stanley, Deutsche MF and even JP Morgan Mutual Fund exited the Indian mutual fund space. The reason was the natural dominance of the bancassurance model with banks accounting for 5 out of the top 10 by AUM. HSBC now plans to marry its own banking model with the mutual fund business of L&T Mutual Fund.

HSBC will gain enhanced ability to serve the wealth needs of its customers in India as well as its very rapidly growing non-resident Indian customer base. Once the deal is completed, the mutual fund schemes operated by L&T Mutual Fund would be either transferred, merged or consolidated into specific schemes of HSBC Mutual Fund. L&T group has already planned to fully exit the mutual fund industry and reallocate the capital elsewhere, in sync with its core business focus areas. HSBC AMC has paid a total consideration of Rs3,191 crore, which is in sync with the predominant debt focus. Normally equity AUM gets a higher percent value.