On Wednesday, the asset-management unit of Goldman Sachs Group Inc. (GS) has agreed to acquire India’s Benchmark Asset Management Co. (BAM), a big provider of exchange-traded funds (ETFs).
The acquisition is meant for expansion in Asia’s third-largest economy and it follows GS’s strategic asset-management partnership in South Korea.
On Tuesday, GS commented it would establish a partnership with Tong Yang Securities Inc. in South Korea. The contract will facilitate the two firms in providing asset-management services to Korean retail investors.
GS has an asset-management license in India since 2008, and now plans to launch actively managed on-shore funds in the country. In India, currently the company’s staff provides research on offshore funds, which include Indian and other emerging-market stocks.
The deal with BAM is expected to close later in 2011, subject to regulatory approvals, though terms of the transaction were not disclosed.
Exchange-traded funds allow investors to buy or sell shares of entire portfolios of stocks in a single security, and they extend investors’ admittance to different types of assets. These funds perform like an index and trade like securities. Investor’s interest is driven in ETFs as they are cheaper than mutual funds.
The completion of the acquisition will facilitate GS in accessing Indian markets, where assets managed by mutual funds more than tripled to INR 6.8 trillion ($150.0 billion) in the last five years.
The deal is positive for BAM as it makes the firm more competitive in the market compared to its rivals like Kotak Mutual Fund and Motilal Oswal Mutual Fund. As of December 2010, assets under ETFs, in which Benchmark specializes, stood at 59.79 billion rupees ($1.3 billion).
BAM was founded in 2001 and had about $700 million in assets under management as of December 31, 2010.
As of the end of December 2010, GS Asset Management had $840 billion in assets under management.
Fundamentally, we expect the company to benefit from its well managed global franchise, strong capital base and industry leading position in trading and asset management. GS’s prudent business model and strong fundamentals are expected to deliver better earnings in the upcoming quarters. Further, the completion of acquisition will bring more businesses for the company, which will be reflected in the coming quarters.
Goldman currently retains its Zacks #3 Rank, which translates into a short-term ‘Hold’ rating. Considering the fundamentals, we maintain a long-term “Neutral” recommendation on the stock. GS’s closest competitor – Morgan Stanley (MS), retains a Zacks #3 Rank (a short-term ‘Hold’ rating).
GOLDMAN SACHS (GS): Free Stock Analysis Report
MORGAN STANLEY (MS): Free Stock Analysis Report
Zacks Investment Research
