DHFL Mutual Fund Hands Over Reign Of Assets To PGLH Of Delaware Inc.
Aug 06, 2019

Author: Divya Grover

(Image Source: Business photo created by yanalya - www.freepik.com)

On 31st July, 2019, DHFL announced that it has exited its mutual fund business---DHFL Pramerica Asset Managers---by selling its entire stake to joint venture partner PGLH of Delaware Inc. The deal was first announced in December 2018. DHFL held 17.12% stake in the AMC; while its wholly owned subsidiary DHFL Advisory and Investments held 32.88%. PGLH of Delaware Inc. is a US-based firm having $ 1.2 trillion in assets under management globally.

[Read: Should DHFL's Exit from Mutual Fund Business Worry You?]

The company said that it has received all the required approvals from the market regulator SEBI and other regulatory bodies. The fund house will now be known as PGIM India Mutual Fund, subject to regulatory approval.

Apart from this, DHFL has sold its 50% stake in DHFL Pramerica Trustees to PGLH of Delaware Inc. The trustee company will now be called PGIM India Trustee.

DHFL Pramerica Asset Managers has total asset under management of Rs 4707 crore as on June 30, 2019, which will now be managed by PGIM India Mutual Fund.

Ajit Menon who was the Chief Executive Officer of DHFL Pramerica Asset Managers will now be the CEO of PGIM India Mutual Fund, while Srinivas Rao Ravuri from HDFC Mutual Fund has been appointed as the Chief Investment Officer-Equities.

Glen Baptist, CEO of PGIM Global Partners said, " This acquisition by PGIM demonstrates our unwavering dedication to investors in India and our deep commitment to delivering high quality and innovative solutions for their long-term investment needs. By leveraging the full strength of PGIM we will be well positioned to continue to deliver value to our clients and strengthen our competitive position in the market."

[Read: SEBI Clears DHFL's Way To Exit MF Business! Will It Affect Your Investments?]

You may recall that DHFL is facing severe cash crunch and huge pile up of loans, and has defaulted on various debt obligations. Following this, the company's credit rating was downgraded from `AAA' to `D' within few months. The company is now forced to sell its non-core assets to pay off its debt and manage liquidity.

What should investors do?

The investors will be allowed a load-free window to exit the scheme in line with the SEBI guidelines for change in control and other fundamental attribute changes.

However, investors should not exit the scheme just because there is a change in control. One should analyse the performance of the scheme after the takeover by PGIM. If it introduces the best global practices and robust investment processes & systems that results in the improvement of the schemes' performances, you may continue with them; else, finding alternatives would be the right choice.

[Read: Should MFs Join ICA To Safeguard Investors Against The DHFL Debt Mess?]

Lessons to learn from DHFL episode

The Indian mutual fund industry has an aggregate exposure of over Rs 5,000 crore to DHFL papers. DHFL Pramerica itself invested in the debt papers of DHFL even as the company was going through a crisis. As a result of defaults and downgrading of credit ratings, the NAVs of many schemes took a hit.

Hence, for mutual fund advisors and investors it's imperative to do a background check of the promoter of a mutual fund house before investing in any of its schemes. Be cautious of schemes that have exposure to the debt of stressed companies. Invest in mutual funds that follow best practices and have robust investment processes and systems in place.

[Read: How Is DHFL's Interest Delay Impacting Your Debt Mutual Funds]

Further, before taking any investment decisions evaluate your investment objective, risk appetite, and investment horizon to select the appropriate scheme based on quantitative and qualitative parameters.

If your scheme is underperforming, compare its performance with that of its benchmark and peers to determine if it is consistently performing poorly. Sell your investment only if the scheme is consistently underperforming or if the change in any fundamental attributes does not align with your risk profile, investment objective, and investment horizon.

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