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World View: Indian mutual funds

December 14, 2007 13:35 IST

India's mutual fund industry is one of the brightest spots in an already fast-growing domestic financial sector.

Assets under management have swollen in the past year by almost 60 per cent to more than Rs5,379bn ($137bn) as the country's once-conservative retail investors have been attracted to equities by new highs on the stock market. Unlisted Reliance Capital Asset Management, owned by businessman Anil Ambani, has sought to put a price on that growth with the sale of a 5 per cent stake to a hedge fund, Eton Park Capital, that values the company, India's largest mutual fund group, at Rs100bn.

Reliance officials say the fund's rapid growth from almost zero six years ago is due to its vast distribution network. It now reaches 300 Indian towns and cities, a number they predict will more than double in two years. But the industry's rapid rise might also be linked to India's corporate sector. Sanjay Aggarawal, national industry director of financial services at KPMG, is researching how much of the surplus funds held by corporates – from profits to loans taken out for investments – are parked in mutual funds while waiting to be deployed in projects.

Corporate India is awash with such funds as it embarks on a new investment cycle. If the amount it is allocating to mutual funds proves to be significant, India's asset management industry can look forward to another great year next year.

Citi swims against tide with split role at top

Sir Win Bischoff's appointment as chairman of Citigroup puts him among an elite of British executives who head America's largest companies. Go back far enough and you can find self-made titans such as Andrew Carnegie, a Scot, but today there are only a handful of others leading large US companies. One is Martin Sullivan at American International Group. Another is George Buckley, who runs 3M. (Neville Isdell, chief executive of Coca-Cola, was born south of Belfast and describes himself as a native of Ireland.)

German-born Sir Win is one of only a few chairmen of large US companies who do not hold the chief executive role, too. Coincidentally, Martin Sullivan is chief executive in a company that has split the two roles; AIG's chairman is Robert Willumstad, formerly of Citigroup. But it would be a stretch to see this as a sign of corporate governance good practice seeping into the US from the UK, where joint chairmen-chief executives are a frowned-upon rarity.

For perspective, 3M's Mr Buckley, who has spent most of his career in the US, wears the traditional tricorn hat that denotes true power wherever American corporate chieftains gather: he is chief executive, chairman and president of 3M.

The CEO-centric culture still runs deep in the US. Even Alan Greenspan concludes in his recent book that independent directors can be a nuisance and that "CEO control and the authoritarianism it breeds are probably the only way to run an enterprise successfully". Yet the split-role model works well in the UK and Citigroup is hard enough for two people to oversee, let alone one. It will be a shame if the bank eventually reverts to the US norm and hands its new chief executive Vikram Pandit the chairmanship. But it will be little surprise.

Lufthansa's gambit

Lufthansa must be pleased to have flown out of the Alitalia hornets' nest last week and left the field clear to its archrival Air France-KLM to bid for control of the beleaguered Italian flag carrier.

With the Germans out of the way, the French probably felt they had the deal in the bag. After all, they believed they had the support of Italian prime minister Romano Prodi, whose government has been desperately trying to sell its 49.9 per cent in the loss-making airline. Alitalia management has also backed the French proposal. But Air France clearly underestimated its only other remaining rival: the far smaller independent Italian airline, Air One.

In terms of public relations and political lobbying, Air One's Carlo Toto has been doing a remarkable job during the past few days. He has managed to whip up a frenzy of nationalistic support for his Italian rescue of Alitalia.

The government and the company's board are due to decide the fate of the airline in the next 24 hours. Rome is clearly in a bind. But should it opt in the end for a home-grown solution – as Spain recently did over its flag carrier Iberia – the Germans could be tempted to open a bottle or two of Chianti to celebrate.

Copyright The Financial Times Limited 2007

Joe Leahy, Andrew Hill and Paul Betts