JioFin & BlackRock JV – disruption whose time has come

BlackRock and JioFin has featured so many times in discussions with my friends from the industry that when they announced JV, my friends asked if I knew this ahead of time and what’s my view on this JV. Truth be told, I didn’t know this ahead of time. I have told my friends many times that we would like to build BlackRock of India and there hasn’t been better time than this. I have also maintained how Reliance & Jio have track record of disrupting industry with inclusive products that work for people from all strata. If there is any firm we would like to get acquired, it’s JioFin. So naturally when the BlackRock and JioFin JV was announced, I was very elated.

Let’s first delve into most probable reasons why BlackRock and JioFin are working together in this industry. Some of these reasons are also why InfinityPool is bringing product line like Shankh to the market.

  • To tap into the growing Indian asset management market. India is one of the fastest growing asset management markets in the world, with assets under management (AUM) expected to reach $8 trillion by 2025. Jio Financial Services and BlackRock will be able to leverage their respective strengths to capture a significant share of this growing market.
  • To bring affordable, innovative investment solutions to Indian investors. Jio Financial Services has a strong understanding of the Indian market and its needs. BlackRock is a global leader in asset management with a proven track record of innovation. Together, they will be able to develop and offer affordable, innovative investment solutions that meet the needs of Indian investors.
  • To scale their operations more quickly. By forming a joint venture, Jio Financial Services and BlackRock will be able to scale their operations more quickly and efficiently. This will allow them to reach a wider range of investors and offer a wider range of products and services.
  • To share risks and resources. By forming a joint venture, Jio Financial Services and BlackRock will be able to share risks and resources. This will make it more feasible for them to enter the Indian asset management market and compete with established players.

The asset management industry in the US is not a monopoly or a duopoly. There are a large number of asset management firms operating in the US, with the top 10 firms accounting for about 40% of the market. The market is relatively concentrated, but not to the point where it is considered to be a monopoly or a duopoly. Here are the top 10 asset management firms in the US by assets under management (AUM) as of March 2023:

1.           BlackRock (AUM: $10.1 trillion)

2.           Vanguard Group (AUM: $8.3 trillion)

3.           State Street Global Advisors (AUM: $4.2 trillion)

4.           Fidelity Investments (AUM: $4.1 trillion)

5.           JP Morgan Asset Management (AUM: $3.4 trillion)

6.           Capital Group (AUM: $3.1 trillion)

7.           Northern Trust (AUM: $2.8 trillion)

8.           Dimensional Fund Advisors (AUM: $2.6 trillion)

9.           T. Rowe Price (AUM: $2.5 trillion)

10.         Franklin Templeton Investments (AUM: $2.4 trillion)

Now, compare that to top 10 AMCs in India by assets under management (AUM) as of March 31, 2023:

1.           SBI Mutual Fund (AUM: ₹7,02,166 crore)

2.           ICICI Prudential Mutual Fund (AUM: ₹509,588 crore)

3.           HDFC Mutual Fund (AUM: ₹437,876 crore)

4.           Nippon India Mutual Fund (AUM: ₹287,827 crore)

5.           Kotak Mahindra Mutual Fund (AUM: ₹284,073 crore)

6.           Aditya Birla Sun Life Mutual Fund (AUM: ₹261,232 crore)

7.           Axis Mutual Fund (AUM: ₹226,881 crore)

8.           UTI Mutual Fund (AUM: ₹223,698 crore)

9.           Birla Sun Life Mutual Fund (AUM: ₹209,019 crore)

10.         Mirae Asset Mutual Fund (AUM: ₹190,560 crore)

The top 10 AMCs in India account for over 80% of the total AUM in the Indian mutual fund industry. This means that a small number of AMCs control a large share of the market. This is due to a number of factors, including the high cost of starting an AMC, the need for a large distribution network, and the regulatory requirements. Trust plays critical role in finance, more so in India due to frauds, misinformation that are seen. JioFin can easily overcome these challenges to gain market share relatively quickly.

Hedge funds like the one offered by Shankh operate in the same industry but have significant different expertise.

  • Hedge funds and AMCs both manage money for investors. However, hedge funds typically target high-net-worth individuals and institutions, while AMCs offer products to a wider range of investors, including retail investors.
  • Hedge funds and AMCs use different investment strategies. Hedge funds typically use more aggressive strategies than AMCs, such as short-selling and leverage. This means that hedge funds have the potential to generate higher returns, but they also carry more risk.
  • Hedge funds and AMCs are regulated differently. Hedge funds are not subject to the same regulations as AMCs. This gives hedge funds more flexibility in their investment strategies, but it also means that they are not as well-protected by regulators.

Overall, hedge funds and AMCs are two different types of investment vehicles that serve different types of investors. However, there are a number of ways that hedge funds can collaborate with large AMCs. Here are a few examples:

  • Hedge funds can provide investment advice to AMCs. Hedge funds have a lot of experience in the financial markets and they can use their expertise to help AMCs make better investment decisions.
  • Hedge funds can co-invest with AMCs. This means that hedge funds and AMCs can pool their money together to invest in the same assets. This can help both parties to diversify their portfolios and to reduce their risk.
  • Hedge funds can provide liquidity to AMCs. AMCs often need to sell large blocks of securities quickly. Hedge funds can provide liquidity by buying these securities from AMCs. This can help AMCs to avoid having to sell their securities at a discount.
  • Hedge funds can provide research to AMCs. Hedge funds have access to a lot of research on the financial markets. They can share this research with AMCs to help them make better investment decisions.

Some are some specific examples of how hedge funds and AMCs have collaborated in the US market:

  • In 2018, the hedge fund Citadel Securities partnered with the AMC State Street Global Advisors to launch a new ETF that invests in Chinese stocks.
  • In 2019, the hedge fund Millennium Management partnered with the AMC T. Rowe Price to launch a new fund that invests in emerging markets.
  • In 2020, the hedge fund Point72 Asset Management partnered with the AMC BlackRock to launch a new fund that invests in technology stocks.

These are just a few examples of how hedge funds and AMCs can collaborate. As the financial markets continue to evolve, we can expect to see even more collaboration between these two types of investment vehicles in the future.

This isn’t the first time BlackRock has gone into JV in emerging markets. Here are a few examples outside of India:

  • In China, BlackRock has a joint venture with China Construction Bank Corporation (CCB) called BlackRock CCB Asset Management. This joint venture was formed in 2005 and is one of the largest asset managers in China.
  • In Brazil, BlackRock has a joint venture with Itaú Unibanco called BlackRock Brasil Asset Management. This joint venture was formed in 2012 and is one of the largest asset managers in Brazil.
  • BlackRock has also entered into strategic partnerships with other asset managers in emerging markets. For example, in 2019, BlackRock partnered with Schroders to launch a joint venture in South Africa. This joint venture is called BlackRock Schroders South Africa.
  • In Mexico, BlackRock has a joint venture with Grupo Financiero Banorte called BlackRock Banorte Asset Management.
  • In Indonesia, BlackRock has a joint venture with Bank Mandiri called BlackRock Mandiri Investment Management.
  • In Turkey, BlackRock has a joint venture with Garanti BBVA called BlackRock Garanti BBVA Asset Management.

Shankh by InfinityPool is an AI-powered investment platform that uses artificial intelligence to help investors make better investment decisions. Shankh uses a variety of AI techniques to analyze market data, identify investment opportunities, and manage risk.

Here are some of the ways that Shankh uses AI in India:

•            Data analysis: Shankh uses AI to analyze large amounts of market data, such as stock prices, bond yields, and economic indicators. This data is used to identify investment opportunities and to develop trading strategies.

•            Asset Allocation: Shankh uses AI to make asset allocation decisions that are optimal based on principles of factor models, behavioral finance, risk management and diversification.

•            Risk management: Shankh uses AI to manage risk. This includes identifying potential risks, developing risk mitigation strategies, and monitoring market conditions.

•            Customer service: Shankh uses AI to provide customer service. This includes answering questions, resolving issues, and providing investment advice.

As the pie gets bigger, there is room for more players. As I have mentioned in my talks as well, there is large sum of money parked in low-productivity instruments like Fixed Deposit that needs shaking in India. Large players like JioFin can help bring about behavioral changes needed in consumers that startups will get benefited from. Additionally, as more investors move up the ladder so to speak, bespoke funds like Shankh become aspirational.