India's mutual fund industry, which currently has 43 companies, is set to get a new player. Reliance Industries' recently demerged Jio Financial Services and US-based investment manager BlackRock are setting up an equal share joint venture in the country to enter the asset management industry.
On the one hand, this joint venture marks the first steps Reliance has taken to build a diversified financial services business. On the other hand, this joint venture will mark the re-entry of BlackRock in India.
Contours of the joint venture
Jio Financial Services and BlackRock will hold a 50 per cent stake each and are targeting initial investments of $150 million each in the venture to be called Jio BlackRock.
While, Jio Financial Services contributes local market knowledge, digital infrastructure capabilities and robust execution capabilities, BlackRock brings deep expertise and talent in investment management, risk management, product excellence, access to technology, operations, scale, and intellectual capital around markets.
Jio BlackRock aims to be a "digital-first" enterprise with a vision to "democratise access to financial investment solutions," according to Hitesh Sethia, president and CEO of Jio Financial Services.
"The partnership will leverage BlackRock’s deep expertise in investment and risk management along with the technology capability and deep market expertise of Jio Financial Services to drive digital delivery of products," said Sethia.
BlackRock's re-entry
Hemendra Kothari's DSP Group had a mutual fund joint venture with Merrill Lynch. BlackRock bought out Merrill's 40 per cent stake in the venture in 2008 and the company became DSP BlackRock Investment Managers. However, BlackRock sold its stake in the venture in 2018 to exit the mutual fund business in India.
BlackRock is the world's largest asset management company, managing close to $9 trillion in assets.
“India represents an enormously important opportunity. The convergence of rising affluence, favourable demographics, and digital transformation across industries is reshaping the market in incredible ways," said Rachel Lord, chair and head of APAC, BlackRock.
It is partnering with Jio Financial Services to revolutionise India’s asset management industry and transform financial futures, added Lord.
Industry Scenario
India's mutual fund industry has seen a rapid rise in assets over the last few years. As of June 2023, the average assets under management of the industry stood at Rs 44.82 lakh crore, compared with Rs 36.98 lakh crore average AUM in June 2022 and Rs 26.06 lakh crore in June 2020.
However, it remains hugely underpenetrated compared with other, especially, developed markets. The ratio of mutual funds assets under management to the country's GDP is hovering around 16 per cent, compared to the global average of 63 per cent.
The rapid growth in recent times and the huge scope to grow have attracted several new players to the industry. Non-banking financial services major Bajaj Finserv launched its mutual fund business last month. The country's largest broking firm Zerodha has announced plans to launch a mutual fund business with the fintech platform smallcase. Hedge fund Helios Capital, Old Bridge Capital Management, and broking firms Angel One and Emkay Global are among the many other companies that are interested in launching mutual fund business in the country.
Jio BlackRock could well disrupt the industry, just like Jio did in the telecom business. But, in the mutual funds business, ultimately its the returns that a fund can deliver will make a big difference.
Also, important to note, is that despite the presence of over 40 companies, the mutual fund industry AUMs are dominated by the top 6-7 companies, especially those who have a backing of a bank. The top five AMCs in the country - SBI Mutual Fund, ICICI Prudential MF, HDFC MF, Nippon India MF and Kotak Mahindra MF - together had AUM of over Rs 22 lakh crore. So, Jio BlackRock will face stiff competition in this industry.
The company will have its own management team, but operations will be launched only after receiving the necessary regulatory and statutory approvals.