Goldman Sachs set to buy Benchmark Asset Management for Rs 160 crores

MUMBAI: Goldman Sachs Group Inc, the world’s biggest securities firm that lagged peers Morgan Stanley and Merrill Lynch in India, agreed to buy exchange-traded fund (ETF) specialist Benchmark Asset Management for Rs 160 crore to benefit from rising affluence among millions of middle-class people.

The acquisition will give it Rs 3,000 crore in assets under management at the bottom of the industry table, but a platform to expand quickly in cities where ETFs are gaining currency because of their ease of investing and low cost.
Goldman, which was idling its licence since September 2008, will be entering an industry that has seen assets fall nearly a fifth since its peak in November 2009 due to regulatory curbs on entry load and commissions to distributors.

“India is one of the world’s largest growth markets and a strategic priority for our firm,” said Oliver Bolitho, head of Goldman Sachs Asset Management in Asia. “We are also pleased to announce that we will bring onshore funds to India—building on the strong expertise that Prashant Khemka’s team has established,” he said in a press release. ET reported the negotiations first on January 25.

Goldman, which started on its own after breaking up a joint venture with Kotak Mahindra, cut its India businesses after the 2008 credit crisis that led to many global firms going bust.

Valuation steeper than others

Goldman had recalled its Indian mutual fund chief executive officer, Adam Broder, from Mumbai. But it has since started hiring executives in a market where Morgan Stanley tops the mergers and acquisitions advisory and Citigroup the fund-raisings league table.

The Indian mutual fund industry had tripled between 2006 and 2010 to nearly Rs 7 lakh crore.

"ETFs have never been Goldman Sachs' strength," said a chief execu-tive at a rival asset management firm who did not want to be identi-fied. "So, the question will be is Goldman seeing a future in ETFs busi-ness or will Benchmark cease to be a ETF-centric firm?"

Goldman may retain the Benchmark staff, which was advised in the transaction by boutique investment banking company MAPE Advisory Group. Benchmark Asset Management was set up in 2001 by Sanjiv Shah and Rajen Mehta, who were colleagues at DSP Merrill Lynch.

But the valuation Goldman paid appears steeper than what other buy-ers paid in recent transactions.

The deal values Benchmark at 4.1% of assets under management. The industry's assets under exchange-traded funds stood at Rs 5,979 crore.

Last year, L&T Finance, the financial services arm of engineering ma-jor Larsen and Toubro, bought DBS Cholamandalam Asset Manage-ment for Rs 45 crore, valuing it at 1.55% of assets. In 2009, Japan's Nomura bought a stake in LIC Mutual Fund for about 2.5% of assets, and IDFC bought Standard Chartered Bank's fund business for 5.7% of assets.

Experts believe Indian investors may go the same way as global inves-tors, who fancy ETF more than conventional funds. Top investors such as Jim Rogers also favour these funds because of their liquidity and hassle-free nature.

Globally, exchange-traded funds were introduced in the US in 1993, but demand for this product took off only in 2008-09, when investors poured money into ETFs that invested in emerging markets world-wide.