The Reliance Industries (RIL) and DE Shaw joint venture (JV) plans to offer the entire spectrum of financial services, including retail, investment banking and broking. It will initially focus on institutional and asset management business.
The 50:50 JV — named DE Shaw India Financial Services Pvt Ltd — was announced two months ago.
“We see potential for explosive growth as the financial services market modernises further. We will leverage our expertise in using technology and innovation to provide services to institutional, corporate and retail clients,” said Louis Salkind, managing director (MD) and member of the Executive Committee of the DE Shaw Group.
Salkind, along with MD Darcy Bradbury, is in India to give final touches to the JV. Salkind, number two at the $20-billion global investment and hedge fund company, is no stranger to India. He set up DE Shaw’s India operations in 1996.
To start with, the two partners have set up a six-member board to oversee operations and formulate strategy. DE Shaw is represented by India head Anil Chawla and Salkind. RIL has named Chief Financial Officer Alok Aggarwal and Muralidhara Kadaba. “But DE Shaw will run the JV to take advantage of its existing resources in India,” said Salkind.
RIL Chairman Mukesh Ambani, who has been a board member of the DE Shaw Group’s global investment committee for the last four years, and Manoj Modi, his trusted aide, will not join the board.
The JV has already started working. It plans to launch an India-specific, sector-agnostic private equity fund by the end of the year. It will target local institutions and high net worth individuals. Salkind refused to give the size of the fund or its investment strategy. The asset management arm – to be headed by Chawla — will subsequently diversify into infrastructure and real estate investments.
Parallel to this, infrastructure for trading Indian equities and futures to support the institutional broking business will be set up. The aim will be to make it functional from mid-2012. “We will by then look to become a corporate investment bank offering all traditional services such as sales and trading, M&A advisory, financing and underwriting, and merchant banking,” said Salkind.
A 100-member workforce will join. If required, Salkind will not mind tapping the 725 people manning DE Shaw’s local operations.
Retail services will follow and may include broking and mutual funds. Interestingly, the management did not mention insurance.
The history of banks and non-banking finance companies (NBFCs) promoted by Indian companies has not been very encouraging. Admitting this, Salkind said DE Shaw would act as “the trust provider.”
Growth in the already crowded market will not easy. It is being speculated that it’s only a matter of time till the JV buys Nimesh Kampani’s home-grown investment bank, JM Financials. Salkind refused to speculate on this. For the time being, the focus will be on organic expansion. But Salkind did not rule out buying NBFCs and investment banks in future.
Will opening a bank be the final goal? “In the initial phase, we would like to be a corporate-focused investment bank,” he said, but added that “as we expand into retail, we may explore a banking licence.”
Independent of the JV, DE Shaw’s India operations will continue under Chawla. He has been running the offshore private equity fund in India which has invested $1.2 billion in different companies.
