Asset Management Companies: India vs The World
Created on 01 May 2023
Wraps up in 13 Min
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The Indian mutual fund industry had ₹39,42,031 crore in assets under management (AUM) as of March 31, 2023. With a more than 5-fold expansion in just ten years, the AUM of the Indian MF Industry increased from ₹7.01 lakh crore on March 31, 2013, to ₹39.42 lakh crore on March 31, 2023. The AUM-to-GDP ratio in India is about 14%, which is lower than the global norm of 75-80%.
But over the coming years, things are likely going to change. Brokerage firm CLSA India projects that between FY 2022 and FY 2025, the equity AUM will increase by 18% annually, from ₹13 lakh crore as of January 2022 to ₹30 lakh crore.
It is always a good idea to have a financial expert manage your money if you don't understand how the stock markets function or how you can manage your finances. And that’s when an Asset Management Company (AMC) comes into play.
What is an Asset Management Company?
Companies called Asset Management Companies (AMCs) are in the business of collecting money from both institutional and retail clients and investing it in a range of assets. The corporation uses the invested capital to purchase capital assets like stocks, bonds, and other types of property.
The research team chooses the appropriate assets, and the asset management organisation employs specialists, known as fund managers, to oversee the investments.
These fund managers find investment opportunities that fit with the objectives of the fund.
An example of this would be a debt fund, which primarily decides to invest in bonds as well as government securities to protect the investment and produce a steady return.
How does an AMC manage the funds?
Direct mutual fund investments can be made through an asset management company (AMC). The corporation is primarily in charge of managing the mutual fund and making financial choices that are advantageous to investors.
It is managed by a fund manager and invests in line with the plan's investment objectives. The process for the same is listed below:
The specific investment aim of mutual funds aids the fund manager in selecting the assets in which investments can be placed. As an illustration, the majority of debt-oriented funds manage a sizable amount of their assets in bonds and other fixed-income products.
Another example is the way most balanced funds combine their holdings in fixed-income and equity securities. There are some important factors that are considered while allocating assets. Let’s understand what they are:
1. The time frame: The investor's time frame is the span of years or months that they anticipate investing to reach a specific objective. Risk tolerance varies with different investing horizons.
As slow economic cycles and high market volatility often subside with time, a long-term investment horizon, for example, can encourage an investor to invest in a portfolio with higher levels of risk.
2. Risk tolerance: In order to gain access to higher potential returns, an investor must be willing and able to accept the possibility of losing some or all of their initial investment. Investors that are aggressive or who have a high risk tolerance are inclined to put most of their money at risk in order to receive better returns.
Contrarily, risk-averse or cautious investors are more likely to invest in securities that protect their initial capital.
3. Research and analysis: Research and analysis of the performance of the asset classes are important components of portfolio construction for the fund. Specialists perform micro, and macroeconomic analyses and report their findings to fund managers, who make investment decisions based on the fund's objectives.
- Microeconomics is a bottom-up discipline since it emphasises on supply and demand as well as other factors that affect price levels.
- Macroeconomics employs a top-down perspective to examine the economy as a whole in an effort to ascertain an economy’s nature and future trajectory.
While macroeconomics is primarily employed as an analytical tool to create economic and fiscal policy, investors can use microeconomics in their investing decisions.
4. Performance review: AMCs are required to give unit holders information that directly affects their mutual fund investments. Additionally, it must regularly update investors on sales and repurchases, NAV, portfolio information, and other matters.
Simply put, AMCs have a responsibility to represent and protect the interests of mutual fund participants. Furthermore, they must confront client issues regarding their own mutual fund programs.
What factors should an investor consider when selecting an AMC?
Before choosing an AMC, you should investigate both the AMC's history as well as the assets it currently manages (AUM).
Selecting an AMC with substantial assets under management is advantageous as it helps investors withstand large redemption demands from major investors. To gain a sense of performance over different market cycles, market-savvy investors can also look at the performance history of different mutual fund schemes managed by the AMC during both market ups and downs.
While selecting an AMC, the investors should take the following factors into account:
1. AMC’s reputation: It might take months or years for a fund house to establish its standing in the industry. For instance, an AMC establishes a strong reputation after performing consistently for around 5 to 10 years.
2. Valuing AMCs: For valuing AMCs, three general methods are used:
- Income strategy: One or all of the following techniques are employed to value an AMC under the income approach: Price-earnings capitalisation approach (PECV) and Discounted Cash Flow methodology (DCF)
- Market method: Comparable companies (CoCo) and comparable transactions (CoTrans) are frequently used to value AMCs under the market approach. The most pertinent valuation multiples for assessing an AMC business are EV as a percentage of AUM and EV/EBITDA. Greater asset balances, fee schedules, and profit margins for AMCs tend to command greater AUM multiples from investors.
- Statistical methods: HUBERMAN and BERK/GREEN are two statistical methods that are also used to value asset managers.
The Huberman analysis consists of three steps; data reduction, data display, and lastly, data conclusion-drawing/verifying. The dividend discount model is used in this strategy
Berk and Green developed a model in order to better understand how active portfolio managers make investment decisions. They investigated how past performance influences investor decisions and discovered that, while active investments do not always outperform passive investment strategies, there are some managers who outperform others.
Investors can better predict which strategies work and will be successful in the future if they understand the cause-and-effect relation between various economic events and the fund’s performance. While no strategy can guarantee success, having a better understanding of market patterns can help investors make more informed decisions.
The simple cross-sectional model is used in this strategy. The outcome under the income/market approach can be validated using these techniques.
3. The fund manager's credentials: You should investigate the manager's background and investment philosophy. The investment approach and expertise of the fund manager determine the performance of mutual fund schemes. Never invest in a mutual fund if you are not at ease with the fund manager's approach to investing.
Additionally, mutual funds have a visual box so you may assess the fund manager's investing philosophy.
Top Asset Management Companies in India
Now that we are aware of how to choose an asset management firm and how they operate, let's look at the asset management companies in India. Followed by the top international AMCs.
ICICI Prudential Mutual Fund
Indian asset management firm ICICI Prudential was established in 1993 as a joint venture between ICICI and Prudential plc. After SBI, it is the second largest asset management organisation in India.
In the Mutual Fund segment across all asset classes, the AMC manages a sizable amount of Assets Under Management (AUM). The majority of their products are given the rating "AAA" which denotes a high level of assurance and dependability.
The establishment of the CRISIL rating system in India was greatly aided by ICICI Prudential Mutual Fund. The health of Indian mutual funds is determined by their CRISIL score, just as a person's creditworthiness is determined by their CIBIL score.
It manages assets valued at more than ₹25 lakh crore as of 20th April 2023. The company is expanding quickly and employs some of the well-known fund managers in the industry.
The AMC serves investors across the nation with Portfolio Management Services, Real Estate Division, and International Advisory Mandates for clients in global markets.
A fully investor-centric strategy has propelled the fund house's exponential growth momentum. The AMC seeks to simplify the path to financial success for its investors and to offer a satisfying investing experience through innovation, stability, and long-term risk-adjusted performance.
Nippon India Asset Management
One of the leading asset management firms in India is Nippon India Mutual Fund. It was a joint venture between Japan's Nippon Life Insurance firm and India's Reliance Capital that was established in June 1995 under the name Reliance Mutual Fund.
The fund house was renamed Nippon India Mutual Fund in October 2019 after Nippon acquired Reliance's interest. The assets under management by Nippon Mutual Funds total ₹2.07 lakh crore.
Presently, there are 52 equity funds, 266 debt funds, and 40 balanced funds available in the Nippon mutual fund lineup. Sundeep Sikka, the CEO, is in charge of the business. Investment management is performed by Nippon Life India Asset Management Limited.
The business offers private funds, trusts, institutions, and individual services like portfolio management, mutual fund investing, financial planning, and consulting services.
Kotak Mahindra Asset Management Company
On August 2, 1994, Kotak Mahindra Asset Management Company Limited (KMAMC) was established as a public limited company under the Companies Act 1956. The business is a wholly owned subsidiary of Kotak Mahindra Bank Ltd. (KMBL) and the asset manager of the Kotak Mahindra Mutual Fund (KMMF).
Operations for Kotak Mutual Fund got underway in December 1998. The specialised gilt fund for investing only in government securities was made available for the first time by an AMC.
Under the SEBI (Mutual Funds) Rules of 1996 and the SEBI (Portfolio Manager) Regulations of 1993, it offers mutual fund and portfolio management services. Through its subsidiary, Kotak Mahindra Pension Fund Limited, KMAMC further provides services for the management of pension funds.
The company currently has 261 schemes available to investors with varying risk appetites. It generally invests in firms with ratings of AAA and AA and has an AUM of 3.8 lakh crore as of FY 2021-2022. Customers have the ability to take advantage of Section 80C income tax benefits through KMAMC.
Aditya Birla Sun Life Asset Management
Aditya Birla Sun Life Asset Management is a joint venture firm co-sponsored by a Canadian corporation Sun Life AMC Investments Inc, and the Indian company Aditya Birla Capital Ltd. It was formerly known as Birla Sun Life Asset management company and is headquartered in Mumbai. It was founded in 1994 and has successfully served the Indian financial industry for more than 25 years.
Aditya Birla Group and Sun Life Financial, Inc, the parent firms, are both significant financial institutions with a long history of wealth creation and management. The Aditya Birla Group, with gross revenues of more than $41 billion, is the third-largest corporate conglomerate in India.
On the other hand, Sun Life is one of the biggest life insurance carriers in the world and also has competence in investment management. It is ranked 236 in the Fortune 500.
One of the biggest asset management firms currently doing business in India is Aditya Birla Sun Life Mutual Fund (ABSLMF). As of March 31, 2022, the total average Assets Under Management (AUM) was ₹2.9 lakh Crore.
The main goal of ABSLMF is to broaden the use of mutual funds in India. In India, there are more than 83.2 million mutual fund folios totalling more than ₹25.43 trillion as of May 2019. It has tripled in the last ten years, and ABSLMF has played a crucial part in that growth.
One of the top asset managers in India, Birla Sun Life Asset Management Company (BSLAMC) serves 7.9 million investor folios and has a presence in 280+ locations across the country, including both major cities and small towns.
In order to simplify the mutual fund management process for both investors and channel partners, ABSLMF plays an active role in doing so. Sector-specific equity options, treasury and debt instruments, fund-of-fund schemes, and hybrid income funds are just a few of the financial products and services they offer at all times.
Now that we have an idea about the Asset management companies of India, let’s have a look at how asset management firms are performing at the global level.
American multinational investment firm BlackRock Inc. is headquartered in New York City. BlackRock, the world's largest asset manager as of January 2022, was founded in 1988 and began as a risk management and institutional fixed income asset manager.
With $10 trillion in assets under management as of January 2022, BlackRock is the largest asset management company in the world. BlackRock does not disclose the revenue for its several business segments because it operates as a single business division.
Yet, it does categorise its income into the following groups: "Investment advisory, administration fees, and securities lending revenue," "Investment advisory performance fees," "Technology services revenue," "Distribution fees," and "Advisory and other revenue."
BlackRock has clients in 100 countries and 70 offices in 30 countries. BlackRock is widely regarded as the best of America's "Big Three" index fund managers.
The Vanguard Group Inc. is a registered investment advisor and asset management firm based in Malvern, Pennsylvania. As of March 2022, there were around $8 trillion in global assets under administration.
It is the second-biggest provider of exchange-traded funds (ETFs) in the world, behind BlackRock's shares, and the largest provider of mutual funds globally. In addition to offering mutual funds and exchange-traded funds (ETFs), Vanguard also offers brokerage, educational accounts, financial planning, asset management, and trust services.
Several Vanguard mutual funds are at the top of the list of mutual funds in the United States in terms of assets under management.
Vanguard, along with BlackRock and State Street, is regarded as one of the Big Three index fund managers that rule corporate America.
UBS Global Asset Management
A global investment bank and provider of financial services, UBS Group AG was founded and is headquartered in Switzerland. Three significant asset management businesses were combined as a result of the 1998 UBS-SBC merger and subsequent restructuring: UBS Asset Management, Phillips & Drew (owned by Union Bank of Switzerland), and Brinson Partners (owned by SBC).
In 2000, the investment teams joined, and the brands were combined in 2002 to form UBS Global Asset Management. A global investment bank and provider of financial services. As the largest private bank in the world and the largest banking institution in Switzerland, it maintains a presence in all major financial centres from its dual headquarters in Basel and Zürich.
UBS customer services are distinguished by strict bank-client confidentiality and culture of banking secrecy. Because of its significant market positions in the Americas, Europe, and Asia Pacific, the Financial Stability Board considers the bank to be a globally important bank.
Along with private banking, UBS also provides wealth management, asset management, and investment banking services to private, corporate, and institutional clients internationally.
Assets Under Management (AUM) under the UBS group as of March 2022 was $3.96 trillion.
UBS Asset Management offers equities, fixed income, currency, hedge fund, global real estate, infrastructure and private equity investment capabilities that can also be blended into multi-asset strategies.
Formerly known as Fidelity Management & Research or FMR, Fidelity Investments is a Massachusetts-based American international financial services firm. The company was established in 1946 and had $4.5 trillion in assets under management. As of December 2021, it managed $11.8 trillion in assets, ranking it as one of the largest asset managers in the world.
Fidelity Investments maintains a huge family of mutual funds, runs a brokerage business, offers life insurance, retirement services, index funds, wealth management, securities execution and clearance, and custody of assets, top of the guidance on investments and the distribution of funds.
State Street Corporation
One Lincoln Street in Boston serves as the corporate headquarters for State Street Corporation, an American financial services and bank holding company with global operations. It is the second-oldest continuously functioning bank in the United States; Union Bank, which it replaced, was established in 1792.
According to assets, State Street is the fifteenth-largest bank in the United States. With $43.3 trillion in custody and administration and $3.9 trillion under management, it is one of the biggest asset management firms in the world.
It is the biggest custodian bank in the world, offering securities services, and the Financial Stability Board regards it as a systemically important bank. State Street is regarded as one of the Big Three index fund managers that rule corporate America, together with BlackRock and Vanguard.
As of 2022, the company is rated 316th on the Fortune 500. The organisation is included in the Financial Stability Board's list of banks that are too large to fail.
The business is named after State Street in Boston, which in the 18th century was referred to as the "Great Street to the Sea" as Boston developed into a thriving maritime centre.
Asset Management Market
According to the report published by Mckinsey in 2022, the unprecedented increases in industry assets and revenues were accompanied by a predictable escalation in the cost structure. Costs in the North American asset management sector increased by $13 billion over the course of 2021, setting a new record of $167 billion.
This growth, which represented an annualised growth rate of 8%, was almost twice as fast as the industry's average rate of asset growth but only slightly slower than the rate of organic growth.
However, the market for international asset management is expected to rise from its estimated value of $12.4 billion in 2021 to $58.66 billion by 2028, with a CAGR of 12.3% over the forecasted period (2022-2028). In the coming years, the India Asset Management Market, which is currently valued at roughly $865 billion, is anticipated to grow at a CAGR of 14%.
Notwithstanding the bad economic conditions that emerged in 2020 as a result of the pandemic, the Indian investment sector was nevertheless able to end the decade on an impressive note.
The Indian mutual fund industry's AUM was ₹37.22 trillion in 2022 (USD 449 billion). Institutional investors account for 45% of industry assets, despite the fact that private investors own 55% of it. 95% of the total comes from corporations, with the remaining 5% split between banks and institutions in India and abroad.
The Bottom Line
The practice of asset management, then, can be defined as the process of gradually raising overall wealth through the acquisition, maintenance, and selling of investments with the potential for appreciation.
Asset management experts offer this service to clients. An AMC can therefore be your destination if you're having trouble deciding where to invest your money. Financial advisors or portfolio managers are other names for them. So now, without any hassle, you can easily manage your hard-earned money.
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