UTI Mutual Fund is nearing a solution to its ownership issues by way of an initial public offer (IPO) to give its existing shareholders a fair and transparent exit option.
The oldest fund house in the country, UTI MF was promoted by four public sector institutions – State Bank of India, Life Insurance Corporation, Bank of Baroda and Punjab National Bank – with each currently holding 18.19 per cent stake in the asset management entity.
Conflict of interest According to regulatory norms, to avoid conflict of interest, one entity cannot hold stake in more than one mutual fund. All the public-sector promoter entities of UTI MF have their respective mutual fund businesses as well.
“A public listing would perhaps be the best way to fairly resolve and reward shareholders for their commitment,” Leo Puri, Managing Director, UTI Asset Management Company told The Hindu . “It is the fairest way and gives transparency in terms of price discovery. This process is fairly close to resolution,” he said.
“UTI as an institution deserves to be given a chance to continue because it is still playing an important role in the system,” he said.
The four entities came on board as sponsors when UTI AMC was going through a transformation post the US-64 crisis. The aim was to help UTI MF stabilise after which the sponsors were to exit.
“It was always intended that the temporary custodians that stepped into UTI should be there for a short while and since they have a conflict of interest they should exit. That situation with passage of time has persisted for a longer time than intended and I think it is very important that we resolve that,” said Mr. Puri, who joined UTI MF in 2013.
UTI MF has assets under management of more than Rs. 1.1 lakh crore and is the sixth-largest in terms of assets under management behind ICICI Prudential AMC, HDFC AMC, Reliance Nippon Life AMC, Birla Sun Life AMC and SBI Funds Management Private Ltd.
In 2010, T Rowe Price Group Inc., through its wholly-owned subsidiary T Rowe Price International, bought 6.5 per cent stake from each of the four entities to acquire a 26 per cent stake in UTI AMC in 2010.
Incidentally, there were reports that the government might also mull merging UTI MF with one of the promoter entities. Mr. Puri said that the fund house is not “contemplating any such scenario.”
“I don't think it (merger) will be healthy for the system at this point. The right path in our view and in our board's view is that we should follow the path outlined and personally I think public listing is the best thing for the system,” he said.
Prithvi Haldea, Chairman and Managing Director, Prime Database, says that UTI MF has a strong and widespread distribution network and deserves to be an independent standalone entity at a time when most fund houses are promoted by banks.
“We require diversification in the profile of players. IPO is the best way to bring down the promoter share to minority. The promoters will hugely benefit as the current valuations would be at multiple times their investment,” he explains.
