UK-based Standard Life, the joint venture (JV) partner in HDFC Standard Life Insurance and HDFC Asset Management Company (AMC), is entering the Indian private equity (PE) space. Gerry Grimstone, the chairman of the British insurance major, speaks to Shilpy Sinha on the impact of the economic slowdown and the company’s investment plans.
Most financial institutions are in deep trouble in the UK. What is the impact on your investments and business?
Standard Life is the largest investor in the UK. Its investments are around 2-3 per cent of the entire the UK stock market. We have invested in all the big companies, banks and financial services firms. Given the financial crisis is rather serious, we are happy that the government is actively trying to manage the situation. However, the pension business is still going strong. In difficult times, people want to save for the future, with as little risk as possible.
Recently, the AMC was shortlisted as fund managers for the pension fund business in India. What will be the strategy, if you are selected?
In pensions, we are number one in the UK. Also, our joint ventures in Canada and China are ranked number three. In India, we have a good partnership with HDFC. Our expertise, combined with HDFC’s very strong reputation and brand name, is a winning combination.
How critical is the listing of the Indian venture?
Listing is always good. It’s like entering the next stage of maturity because it involves bringing in outside capital and shareholders. At present, both partners, HDFC and Standard Life, have enough capital. Even the parent company, Standard Life is the most capitalised, among life insurance companies in the UK. So, we are in no hurry to list.
HDFC is said to be conservative. Do you have any problems with that?
We are conservative as well. If people are entrusting their savings with a company, they would prefer a conservative to a risk-taking firm.
Especially, in today’s world, it’s not at all a bad thing to be conservative. It is due to this fact that Indian banks are strong and well-regulated, which makes the economy safe today. We work very closely with HDFC. Though we have a 40 per cent stake in the AMC, we are genuine 50-50 partners in a lot of ways.
At present, Standard Life has a 26 per cent stake in the JV. Would you hike it to 49 per cent, if the Insurance Bill is passed?
We are pleased that the government has introduced the Insurance Bill in the Rajya Sabha and is looking forward to it getting passed. Though there are mixed views on how much progress can be made before the elections, I am sure that the tide is turning in favour of this Bill. Even if the limit is raised from 26 per cent to 49 per cent, Indian firms will continue to have management control.
But the hike will lead to inflow of foreign capital that can be used to expand businesses. We met Commerce Minister Kamal Nath in Delhi before coming to Mumbai, who made the point that liberalisation in India has to be done in a measured manner. But the pace of liberalisation also needs to recognise the special circumstances of the country, in terms of India’s insurance needs and take proper measures. I hope whoever forms the next government continues to focus along these lines.
When the sector was opened up in 2000, all insurers were expecting to be profitable within seven-eight years. But it has not happened. Why?
The insurance business is quite different from other businesses. Insurance companies eat up a lot of capital. And the more capital they eat, the better it is for the business. It implies that the firm is venturing into new areas and underwriting lots of products. Life insurance business requires a lot of investment upfront and returns only come at a much later date. So, sheer profitability isn’t a good measure.
You have started a private equity business in India. What are your investment plans?
Candover is one of the largest and the oldest private equity companies in the Europe and a listed company, which is rather unusual. We started our private equity business in India a few months ago. We have opened our Asia office in Mumbai, with Harsha Raghavan from Goldman Sachs as the head of India operations. But we have not made any investments so far. You can only invest when there is a thinking that the economy is going to recover. We have not raised an Asian fund, but have a group of investors who will fund the right opportunity.
