UBS buys StanChartÆs India funds business

It wants to transform a low-margin mutual funds business into an equities shop.
UBS Global Asset Management has bought its way into the domestic Indian market by acquiring the asset-management business of Standard Chartered Bank. It has also announced a strategic relationship with Standard Chartered to distribute UBS investment products throughout Asia, the Middle East and Africa. The deal was announced Friday.

UBS will pay CHF147 million ($118 million) for 100% of Standard Chartered Asset Management and Standard Chartered Trustee, the manager and trustee of the mutual funds offered by the company. That equates to 4% of the fundsÆ total assets of Rs126.2 billion ($2.9 billion), as of December 2006.

Some analysts say that is a high price, particularly given that 81% of the funds are for fixed income or money markets, which is low-margin business. But Christof Kutscher, head of UBS GAM in Asia Pacific, says the price was "significantly lower than the average for other deals done in India in previous years".

Market participants believe that Morgan Stanley advised StanChart on the sale, but this could not be confirmed by press time; UBS did not have an advisor.

The StanChart funds business now has about 60 employees, and Kutscher says the firm wants them all to remain. "This is not a restructuring exercise, it's the acquisition of a growth company in a growth market."

The existing management will continue to run the business while UBS will insert a handful of executives once regulators approve the deal. Kutscher wouldn't specify these roles, but does say UBS will help the firm develop expertise in equities and value-added products.

This represents the denouement of Standard CharteredÆs decision made a few years ago to exit manufacturing of fund products and specialise in distribution. It still manages assets for investment banks but gradually disposed of its funds businesses around Asia. India was the last market where it had its own mutual funds.

StanChart currently ranks 9th among IndiaÆs 29 mutual fund companies in terms of assets under management. It has 4% of the $73 billion market and is based in Mumbai. The business was formerly known as ANZ Grindlays Asset Management until 1999.

Although the India acquisition will grab headlines, it may be the distribution arrangement that really gives UBS GAM a lift. (UBS is already a top broker for international investors seeking India exposure, and last year established a service centre in Hyderabad for research, business processing and IT.) UBS is a big asset manager in Asia, with $65.5 billion of assets sourced from Asia Pacific. But its biggest distributor is UBS Wealth Management, its private banking affiliate. Standard Chartered Bank is a leading distributor of investment products in most Asian markets, particularly for the fast-growing, high-margin retail businesses. A regional partnership will allow UBS to crack these markets.

Sameera Anand contributed to reporting on this story.
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