Almost all top foreign fund houses are vying for a share of the investors’ money, but their average assets under management (AUM) and performance are nothing to write home about. One area where foreign funds could have made a difference is giving the Indian consumers an option to get exposure to global markets through funds that invest in foreign securities.
However, a cursory glance through the track record of some of the global funds launched in the past reveals a lack of substantial AUM and poor fund performance.
Out of 19 global funds launched since 2006, eight funds have underperformed and seven have outperformed while the remaining four funds have a benchmark for which data is not available in the public domain.
Kotak Global Emerging Market (Rs242 crore in corpus) and Fortis China-India (Rs97.28 crore) have been the worst performers. The net asset values (NAVs) of these funds, since inception, have declined 4% and 7% respectively. Their respective benchmarks, the MSCI Emerging Markets Index, was up 17% while the BSE 200 has declined 2%. The NAVs of DSP BlackRock World Gold (Rs1,455.52 crore in corpus) and DSP BlackRock World Energy (Rs394.31 crore) have gained 13% and 9% respectively, while their benchmarks—prices of gold and MSCI World Index—have gained 28% and 14% respectively. The performance and growth of some foreign controlled funds such as JP Morgan, Principal and Fortis has been rather poor. Recently, the Japanese bank, Shinsei Bank, has decided to exit from India.
If this is the result of foreign funds’ expertise, the question that remains is what difference can a global fund company make to Indian investors’ investments? Certainly, bringing in fund management expertise to managing the money of the Indian masses is not what we can look forward to. This assumes significance after the latest entry of a foreign fund company into India, when T Rowe Price (TRP) finalised the acquisition of 26% stake in UTI Mutual Fund.
One other way a foreign fund company can help an Indian fund is to market Indian offshore funds to overseas investors. UK Sinha, chairman of UTI, believes that this strategic tie-up with T Rowe UTI will be able to market the ‘UTI India Fund’ which is not very well known overseas, in a better way. UTI is also planning to launch an ‘Emerging Markets Fund’ which will be marketed by Rowe globally while domestic operations will be under UTI. But the days of offshore funds are over long ago, after India allowed foreign investors to come directly into India through the FII (Foreign Institutional Investor) route. TRP’s investors are all already in India through a variety of means.
UTI is the oldest and one of the largest mutual funds in India with average Assets Under Management aggregating to Rs78,203 crore ($16.96 billion) in December 2009. It’s the first AMC in the Indian MF industry to have crossed 1 crore investor accounts. TRP’s transaction values UTI at Rs2,500 crore, roughly 3.5% of the AUM. During the boom, Indian funds were valued at more than 6% of AUM.