SEBI approves HSBC AMC acquisition of L&T Mutual Fund

It is official and it has now got the approval of the regulator; the Securities and Exchange Board of India (SEBI). The proposed merger between HSBC AMC and L&T Mutual Fund of India will create another significantly large asset management company in India. SEBI has approved the acquisition  of L&T Investment Management by HSBC Asset Management (India) Private Ltd. The latter is an indirect and wholly-owned subsidiary of HSBC Holdings plc, one of the largest banking and wealth management conglomerates in the world. It is in fact almost like a reverse merger of a large fund into a much smaller fund.

HSBC Asset Management Company has average assets under management (AAUM) of Rs13,620 crore as reported by AMFI as of September 2022. On the other hand, as per the AMFI records, L&T Investment Management (which runs the L&T Mutual Fund), is a wholly-owned subsidiary of L&T Finance Holdings Ltd. As per AMFI records, L&T Mutual Fund had average assets under management (AAUM) of Rs71,703 crore and it is the 14ths largest fund in India by AAUM as of September 2022. It has a fairly wide reach with over 22 lakh active folios. The combination will create an AMC with over Rs85,000 crore of AUM.

What has triggered this merger. Restructuring has been a part of the mutual fund industry for a long time. In the last 15 years, many large global players like Goldman Sachs, Fidelity, Morgan Stanley, Deutsche MF and even JP Morgan Mutual Fund exited the space. Clearly, the Indian market was proving to be too tough and the bancassurance model was a big challenge. HSBC wants to marry its own banking model with the mutual fund business to offer comprehensive wealth solutions to its clients. For L&T, this is part of their strategic decision to exit all segments of business that don’t fit into their core focus areas.

For HSBC, this decision is well thought through. This will not only add to their ability to serve the wealth needs of its customers in India but also of its rapidly growing non-resident Indian customer base across the world. As part of the deal, the mutual fund schemes operated by L&T Mutual Fund would be either transferred, merged or consolidated with identified schemes of HSBC Mutual Fund. L&T group will exit the mutual fund business so the entire management of the combined entity will be done by HSBC AMC going ahead. The total consideration paid is Rs3,191 crore, which is in sync with the predominant debt focus.

The deal was announced first in December 2021 with the underlying intent of bolstering the wealth management business of HSBC group. The proposed deal has already secured the approval of the Competition Commission of India (CCI) way back in March 2022 itself. Only the SEBI approval was pending, which has also come through now. For HSBC, this offers them the leeway to build its India wealth franchise and tap the fast growing Indian wealth market more effectively. Currently, the HSBC group globally manages assets amounting to $595 billion on behalf of its clients and is one of the most respect names globally.