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Headless UTI AMC Hits T Rowe’s Asia Growth plans

18 November, 2011

A leadership vacuum at UTI Asset Management is taking a toll on the health of India’s oldest mutual fund, dealing a setback to the Asian growth ambitions of its joint venture partner, USA money manager T. Rowe Price Group Inc.

Baltimore-based T. Rowe, a conservative investor which negotiated the 2008 financial crisis better than most rivals, paid $140 million two years ago to acquire about a quarter of UTI, which boasted more than 10 million client folios.

But instead of serving as its beachhead into a fiercely competitive but lucrative market, T. Rowe is finding itself caught in a web of Indian politicking.

T. Rowe’s woes started when UTI Chairman U.K. Sinha, a former bureaucrat, quit in February to head regulator Securities and Exchange Board of India.

With UTI failing to appoint a replacement till date, the money manager has slipped.

“Being headless for such a long time is not good for anyone, be it employees, investors, distributors or shareholders,” said Aditya Agarwal, India country head for mutual fund research firm Morningstar Inc.

“They should at least have someone to give direction to the whole business in these tough market conditions,” he added.

UTI’s average assets for the September quarter was Rs 625.8 billion ($12.3 billion), down 7 per cent from the March quarter, according to data from the Association of Mutual Funds in India. Industry assets, by comparison, have risen 1.7 per cent during the period.

The number of UTI’s investor accounts fell by at least 83,350 to 98,87,686 in the year ended September, while rivals such as HDFC Mutual Fund and Reliance Mutual Fund added tens of thousands of accounts, according to Indian newspaper Mint.

The firm also saw its net profit fall 19 per cent in the financial year ended March 2011 to Rs 1.4 billion from a year earlier, according to documents at UTI’s website.

Friction Between Partners?

Reports have also surfaced in the Indian media about friction between T. Rowe and the government, which is represented in UTI through the 76 per cent held by four state-run financial institutions, over the appointment of the chairman.

UTI has always been led by a government nominee and according to reports in the Indian media, the country’s finance ministry is pushing Jitesh Khosla, a bureaucrat, as Sinha’s replacement. T. Rowe, on the other hand, is in favour of a candidate picked by an executive search firm UTI hired in February, the reports said.

UTI, UTI board member P.R. Khanna and T. Rowe declined to discuss the chairman’s appointment.

T. Rowe executives referred questions to spokesman Ed Giltenan, who would say only that “the process for selecting a new CMD (chairman and managing director) is ongoing and we have faith in the board of UTI and the board-led search process. We feel it would premature to comment further at this time.”

The four Indian financial shareholders of UTI are State Bank of India, Bank of Baroda, Punjab National Bank and Life Insurance Corp of India.

Ashvin Parekh, national leader of global financial services at consultant Ernst & Young, said in an e-mail from Mumbai that “UTI AMC is going through a difficult phase” and that “cultural difference” between its American and Indian owners might be at play.

“Perhaps the cultural difference should have been thought about and addressed in the early stage itself,” he said.

Playing Catch-up

The USA firm, which started selling products to clients outside the United States about a decade ago, is playing catch-up in the region with rivals such as Fidelity and Franklin Resources Inc.

The company told Reuters in an interview in February that it was looking to expand its operations in China and South Korea.

Unlike peers, which have built up their brands and retail businesses in the high-potential Asian asset-management industry, T. Rowe is primarily focused on attracting institutional money.

The story is different in India, at least for now.

UTI is a mass retail fund firm with a presence in more than 450 districts with one of the biggest distribution networks in India. It also offers a product that allows those with low income to invest Rs 200 (about $4) a month.

The price T. Rowe paid in 2009 for its 26 per cent stake looked then like a bargain for entry into Asia’s fourth-biggest mutual funds industry.

The deal, which T. Rowe Chief Executive James A.C. Kennedy said at the time was “a major bet on India”, was intended to jumpstart it in a market ruled by local players.

But now the deal’s wisdom may be unclear until a new head is named.

Another problem, the Indian financial newspaper Business Standard reported last month, is that the Indian market regulator has restricted the products fund companies may launch in the absence of their heads.

In February, UTI named Chief Marketing Officer Jaideep Bhattacharya, Chief Finance Officer I Rahman, Head of Equity Anoop Bhaskar and Head of Fixed Income Amandeep Chopra in a committee under its board to run its day-to-day affairs.

“If a competent bureaucrat is appointed for this responsibility then it is okay but an industry person with sound track record would reduce the element of surprise and experimentation,” Parekh said.


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Headless UTI AMC Hits T Rowe’s Asia Growth plans

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