JFS is the recently spun-off fintech arm of Mukesh Ambani’s flagship. BlackRock handles about $11 trillion or 7% of all global financial assets.
This will mark an India comeback for Wall Street’s green crusader Larry Fink, chairman of Blackrock, after parting ways with long-time partner Hemendra Kothari of DSP.
The joint venture will be called Jio Blackrock and will launch operations after regulatory and statutory approvals. The company will have its own management team.
Both sides have negotiated to invest $150 million each to start the venture and capitalise it further in future, said people with knowledge of the matter. BlackRock’s digital platform Aladdin—the Asset, Liability, and Debt and Derivative Investment Network–fits into Ambani’s plan of using data and technology to disrupt the Indian financial markets. The top leadership at both companies have met to hammer out the broad structure of the alliance, said the people cited above.
Much like Amazon that commercialised its cloud platform after using it for captive purposes, BlackRock developed the Aladdin portfolio management system for its own holdings. It was then sold to clients as a software as a service to manage risk, move money across asset classes and analyse consumer data, besides tracking fund performance and changing portfolio values.“India represents an enormously important opportunity. The convergence of rising affluence, favourable demographics, and digital transformation across industries is reshaping the market in incredible ways,” Rachel Lord, chair and head of APAC, BlackRock, said in the release. The advantage in capital markets businesses such as asset management and digital broking, according to industry veterans, is that they are not highly capital intensive, experts said. The annual profit pool in both is less than $1 billion each with the top six mutual funds dominating approximately 60% of the industry.
There’s been a surge in total customers since the pandemic to 36 million from before that as household savings get institutionalised. This is an area where RIL could have room to differentiate with a likely focus on passive investments.
“Fintechs like Navi are also focusing in this area,” said Sachin Salgaonkar of Bank of America. “Furthermore, JFS could try to distribute mutual funds through RIL’s network, feet-on-the-street team rather than depending on traditional distributors. This could help them reduce costs, which could be partially passed on the consumers as well. Broking is also an area which could be targeted by JFS.”
For a late entrant like Blackrock, a tie-up with Reliance will significantly reduce investments in building a competing distribution network. BlackRock had ventured into India by acquiring the mutual assets of Merrill Lynch Investment Managers in 2006. In 2008, Fink partnered veteran investment banker Hemendra Kothari to grow the business further, creating DSP BlackRock. Kothari bought out his partner in 2018, by which time DSP BlackRock had amassed assets under management (AUM) worth Rs 89,000 crore.
Subsequently, Deepak Parekh courted Fink as a possible investor in HDFC AMC but those talks did not fructify. HDFC partnered with Standard Life of the UK.
Last October, Reliance said its consumer and merchant lending business will be based on proprietary data analytics–mined from its nearly 1 billion telecom, smart phones and retail consumers–to complement and supplement the traditional credit bureau-based underwriting.
“Aladdin will find a perfect launch pad in JFS as Mukesh Ambani’s financial services play rests on a digital backbone from his existing eco-system,” said an official in the know on condition of anonymity as talks are still in the private domain. “Although lending to consumers and merchants will be JFS’s mainstay, it will look to also bulk up its non-lending side like insurance and asset and wealth management as well. Lending is a tough segment to crack because of lack of customer stickiness.”
The partnership will leverage BlackRock’s expertise in investment and risk management along with the technology capability and deep market expertise of JFS to drive digital delivery of products, said JFS president and CEO Hitesh Sethia.
“Jio BlackRock will be a truly transformational, customer-centric and digital-first enterprise with the vision to democratise access to financial investment solutions and deliver financial well-being to the doorstep of every Indian,” he said.
During the first-quarter earnings call on July 21, RIL chief financial officer Srikanth Venkatachari had said, “Around Rs 15,500 crore of cash and liquid investments have been transferred from RIL’s consolidated balance sheet
to JFS as part of the scheme.”
JFS will have a total liquid asset base of Rs 20,700 crore, including cash equivalents in RIL associate Reliance Services and Holdings Ltd, which is now a part of JFS, he said.
“While JFS will carry out the lending business independently and organically, for the insurance and AMC/wealth management businesses, it might enter into a joint venture or a partnership agreement with either an existing player or a new player that wants to enter the Indian market,” said Motilal Oswal Financial Services analysts Swarnendu Bhushan and Aliasgar Shakir in a July 23 report.
