LIC likely to exit mutual fund JV with Nomura

The company seeks finance ministry’s nod; could also cut stake in housing finance business

As part of its new strategy on non-core businesses, Life insurance Corporation is considering exiting from its mutual fund joint venture with Nomura, and paring its stake in LIC Housing Finance.

According to sources, in a January 6 letter to the department of financial services under the finance ministry, LIC said it wanted to stop sponsoring LIC Nomura Mutual Fund, and might offer some of its stake in LIC Housing Finance to other shareholders.

The letter focused more on the dismal performance of the fund house sponsored by LIC, and did not elaborate on the insurance company’s plans for LIC Housing Finance.

In the near term, it wants to stop sponsoring LIC Nomura Mutual Fund, whose assets under management stood at a low Rs 7,618 crore (Rs 76.18 billion) as of December last year.

LIC sought the department’s approval to break the joint venture. In the meantime, it will not put fresh funds into the business.

“Pending the ministry’s nod, we will not put fresh funds. . . However, we will continue good business relations with the fund house,” said an official who did not wish to be named.

Emails sent to LIC, LIC Nomura Mutual Fund and LIC Housing Finance had not elicited any response till the time of going to press.

LIC, the largest domestic investor in the market, managing assets worth over Rs 17 lakh crore, holds a majority stake in LIC Nomura Mutual Fund, which was set up in April 1989.

According to the company website, LIC holds a 45 per cent stake and LIC Housing Finance a 20 per cent stake in the venture, while Japanese investment firm, Nomura, owns 35 per cent shares.

The discussions to discontinue the joint venture had begun in August last year, when LIC and Nomura had exchanged correspondence for the way forward.

LIC Nomura MF’s AUM dropped to almost a 10th of the Rs 70,000 crore (Rs 700 billion) during its heyday, even as the industry’s overall AUM exceeded Rs 10 lakh crore (Rs 10 trillion) in May, amid a stock market rally.

In September 2014, LIC raised concerns on the fund house’s performance.

Chairman S K Roy was quoted as saying that the business had not grown in the desired way, and was yet to be scaled up.

If the finance ministry approves LIC’s plan to exit, either Nomura will have to increase its stake in the venture or LIC will sell its stake to another entity.

This will be the 16th deal in the country’s mutual fund space in the past one-and-a-half decades.

Even as there have been a few instances of foreign fund houses shutting shops here -- there have been five such exits in the past five years -- LIC’s exit from LIC Nomura MF will be a rare instance of an Indian partner pulling out of a mutual fund joint venture.