Illustration by Yohey Horishita
A decade ago, T. Rowe Price Group, manager of $1 trillion globally, bought a large stake in India’s UTI Asset Management Co., full of hopes of running money for India’s rapidly growing middle class.
Instead, T. Rowe spent the next ten years butting heads with the co-owners of the Indian business, including taking them to court because they couldn’t agree on who would manage the business. The upshot: UTI was left without a CEO for four of those ten years, and its market share has nearly halved.
On October 12, UTI Asset Management went public on Indian stock exchanges, a move that dilutes the stakes of the local shareholders and may bring the control that T. Rowe Price has long sought. But will that, at long last, turn the fortunes in T. Rowe’s troubled play for India?
UTI needs strong leadership and a long-term vision, and it needs to avoid investment mistakes to be able to succeed, says Dhirendra Kumar, chief executive of Value Research, a fund research firm in New Delhi. “That all has to be proven from here on,” he notes.
T. Rowe’s investment has suffered from a different problem: taking on the Indian government as a partner. T. Rowe had bought a 26 percent stake in UTI Asset Management from four existing shareholders, all state-run companies. UTI was effectively a government-run company, with a bureaucrat in the top job and the owners following instructions from India’s Finance Ministry.
“You can’t expect the Indian bureaucracy to be nimble and on their toes,” says Hansi Mehrotra, former head of Mercer’s investment consulting business in India. “It’s very important to pick your local partners carefully.”
T. Rowe was careful with its India entry — in some respects. Rather than starting a business from scratch, it chose to invest in a company with a strong pedigree.
UTI’s predecessor, Unit Trust of India, was created under a special law in 1963, and its first fund became the country’s largest. For years the fund provided steady returns, but it could not maintain them in the market downturn of the mid- to late 1990s, and the company had to be bailed out by the government. A new company, UTI Asset Management, arose in 2003, owned equally by government-run entities State Bank of India, Punjab National Bank, Bank of Baroda, and Life Insurance Corp. of India.
Even with the new avatar, UTI continued to dominate. When T. Rowe came to India in January 2010, UTI was managing about 10 percent of the mutual fund industry’s total $165 billion in assets, and was the fourth-largest asset manager.
At the time, India was one of the fastest-growing countries by GDP in the world, and millions of people were moving up to join the middle class. They were poised to allocate more of their savings to mutual funds, away from bank deposits and gold, and UTI was well placed to capture that growth.
“If I look out the next ten to 15 years, the Indian fund industry will have a higher growth rate than the U.S. fund industry,” Ed Bernard, then vice chairman of T. Rowe Price Group, said in 2010.
The 26 percent stake in UTI, which cost about $140 million, made T. Rowe the company’s single largest shareholder. T. Rowe was assured that UTI would have an initial public offering within a few years, which would reduce government ownership. At that time, India’s finance minister was talking about reform and transforming public institutions into market-driven entities.
But reform hasn’t come easily, or quickly. “Everything in India remains contested,” says one person familiar with the matter. In UTI’s case, some in the bureaucracy didn’t want to give up control to a foreigner, and T. Rowe Price got caught in the middle.
It took more than two years for UTI to finally get a new chief. Leo Puri, a former director of McKinsey & Co., set about changing UTI’s culture into a professional meritocracy.
For years, UTI employees had had a sense of entitlement that is typical of government job holders, according to a knowledgeable source. They believed that promotion was tied to serving time and gaining seniority rather than to performance, explains a former executive of the firm. This was a job for life, the thinking went, so accountability was limited. When management tried to tweak this structure, stating that capability rather than seniority would determine who would be in key roles, it met resistance in certain quarters.
Amid the culture clash, new CEO Puri was eager to take UTI public. Two of the Indian shareholders, along with T. Rowe Price, pushed for the IPO, but at least one shareholder, Life Insurance Corp. of India, was dallying with the idea of absorbing UTI into its eponymous fund company. That would have effectively squeezed out T. Rowe. That’s likely where the relationship broke down.
As all shareholders had failed to agree to the listing, the matter went to the Ministry of Finance for a “no objection certificate.” It never came. “We have to see how the interest of the country is protected,” one official at the Finance Ministry said in 2016.
Meanwhile, in 2018, a new securities rule came out, requiring that the Indian owners of UTI, all of whom were also running their own asset management companies, cut their UTI stakes to less than 10 percent. An IPO would be the obvious way to do this, but no effort toward one was made.
In mid-2018, Puri’s five-year term came up for renewal. T. Rowe was keen for him to continue; the state-run shareholders were not. They blocked him. T. Rowe decided to fight back, and in doing so “they shocked the system,” says someone familiar with the matter.
T. Rowe filed a writ petition against the four shareholders and the Finance Ministry in Bombay High Court, asking that the shareholders comply with the regulation and reduce their shareholdings. T. Rowe withdrew the case a short while later, after getting assurances from the government about an IPO.
Meanwhile, the clock ran out on Puri’s term, and the CEO left in mid-August 2018. The board would once again let the top job remain vacant for nearly two years. Eventually, CFO Rahman, in his second turn as acting CEO, got the role permanently.
Although the Indian fund industry in the past decade has quadrupled in local currency terms, to about $370 billion, UTI’s assets have doubled, to $21 billion. UTI has a large presence in small-town India but lacks the kind of strong big-city distribution network that has helped other fund companies, especially those owned by banks, to grow. The country’s top three mutual fund companies by assets are sponsored by State Bank of India, HDFC Bank, and ICICI Bank.
UTI’s long-awaited IPO came to pass in October, marking a new chapter and a new governance structure for the company. Ownership stakes for three of the four state-run owners have sunk below 10 percent, which means those companies won’t have board representation. T. Rowe Price will keep its two seats, and the remaining Indian shareholder will have a board nomination. The CEO, who chairs the board, will be an interested party, and the rest of the board will be independent.
“We remain optimistic about the long-term growth potential of UTI and the Indian asset management industry,” says Flemming Madsen, head of global financial intermediaries at T. Rowe and a UTI board director, in a statement. Madsen calls the IPO an important turning point. “As a publicly listed, board-led, independent firm, [UTI] is well positioned to build on its historic strengths and to compete as a leading asset management company in India.”
UTI has promise, says Kumar, the analyst — “if it can actually become a truly independent company, drive a culture change, and shrug its legacy.”
