Principal buys PNB out of MF

Punjab National Bank (PNB), India’s thirdlargest public lender, has sold its 21.38 per cent stake in joint venture Principal-PNB Mutual Fund to the US-based Principal Financial Group for an undisclosed sum.

Subject to regulatory approval, the entities signed a share purchase agreement to transfer full ownership of the asset management business to the Principal group.

“PNB has been a valuable partner in helping us to grow and establish a presence in the market. Principal has been assuming increased ownership in the asset management company over time,” said Pedro Borda, president of Principal Southeast Asia and India.

Assets under management by Principal PNB Mutual Fund were ~58.25 billion in September. The sale comes amid rapid growth in the mutual fund (MF) industry as services reach smaller towns. Assets under management by the MF industry are nearly ~23 trillion.

Despite PNB’s large branch network, the growth of Principal PNB MF has not been on a par with the rest of the industry. This is also the case with other fund houses sponsored or supported by public sector banks, barring SBI Mutual Fund. Many see the recent deal as part of PNB’s strategy to divest non-core business activities.

Partial stake sales by Union Bank to Daiichi and by Reliance Capital to Nippon Life are recent examples of M&A activity in the Indian mutual fund industry. Earlier, Invesco Mutual Fund bought out Religare and Deutsche was sold to Pramerica.

Principal has been present in India for nearly two decades. The group provides investment services to retail and institutional clients.

“India’s large emerging middle class has a growing need for, and interest in, long-term saving and investment products. We look forward to leveraging our global expertise in retirement and asset management to help Indians achieve their personal investment goals and greater financial security,” Borda added.

Almost all large fund houses in India are joint ventures with foreign partners. The departure of Fidelity, Nomura, Deutsche, Shinsei, Morgan Stanley, ING, Goldman Sachs, PineBridge and JP Morgan from their India asset management business has raised concerns about the sustainability of the business model of foreign MF houses in India.