Merrill to sell stake in funds

Merrill Lynch, the US-based global investment bank, could be hawking its stake in its mutual funds business worldwide, and the reverberations could be felt in India. Merrill Lynch has a presence in India through DSP Merrill Lynch, whose mutual fund manages assets worth Rs 6,201 crore.

The New York Times reported on June 3, 2004, "Merrill Lynch has been exploring the possibility of selling a big stake in its investment management business, according to bankers who have been briefed on the discussions."

The report added, "Merrill has had talks with Legg Mason, the Baltimore-based investment management company, about such a sale. For Legg Mason, which manages $286 billion in assets, taking on Merrill's $513 billion would lift it into the big league of money management."

In India, Merril Lynch's mutual fund arm seems to have been taken unawares by the development. Hemendra Kothari, chairman of DSP Merril Lynch, was unavailable for comment. A spokesman for DSPML Mutual Fund declined to comment on the development and how it would impact the asset management business in India.

DSP Merrill Lynch Mutual Fund was set up as a trust by DSP Merrill Lynch Ltd and Merrill Lynch Investment Managers LP, US. The sponsor, trustee and investment manager to the fund are DSP Merrill Lynch Ltd, DSP Merrill Lynch Trustee Company Pvt Ltd and DSP Merrill Lynch Fund Managers Ltd, respectively.

Merrill Lynch Asset Management holds 40 per cent of the paid up share capital of the asset management company, while the remaining 60 per cent is held by DSPML

According to the latest Association of Mutual Funds of India figures on the mutual fund sector, the DSP Merrill Lynch fund has also been one of the fastest growing funds during May. It manages 11 schemes, including five debt funds and four equity funds.

On a global scale, according to the NYT report, "The firm (Merrill Lynch) has long been a gatherer of assets. But the mutual fund trading scandal and increased scrutiny of fund marketing by state and federal regulators has made the business riskier for investment banks."

According to the report, Merrill Lynch is not discussing an outright sale but is considering only selling part of its stake. Quoting a research note by an analyst for Deutsche Bank Securities, the NYT report says, "Robert C. Doll Jr, the president of Merrill's investment management division, acknowledged that a partial sale of the fund unit would ease regulatory conflicts."

The note further points out, "Merrill has been undergoing a broad reconsideration of its fund business."

The report also says, "In many ways, Legg Mason could be the perfect partner for Merrill. Unlike many of its peers, Legg has steered clear of any major run-ins with regulators over improper trading in its mutual funds or questionable sales practices by its 1,400 brokers."