DE Shaw-RIL Financial JV Aims to Rival Banking Giants

Venture to enter trading, lending, retail broking and asset management business

The DE Shaw-Reliance Industries joint venture in India will position itself to be a full-fledged financial services firm with offerings from algorithmic trading to lending, stock broking and asset management that may rival leading banks in a few years.

DE Shaw, the hedge fund founded by a Columbia University computer science professor, will shed its stripes as an institutions-focused firm for the first time by venturing into businesses that it had not done so far. The venture will benefit from Reliance's resources and relationships. DE Shaw's computing skills and fund management expertise may provide the edge. "Reliance is not in financial services and actually that makes the marriage better," Louis Salkind, managing director at DE Shaw said in an interview. "It makes the role of each partner clear. We won't be stepping on each other's toes. Reliance has the access to capital, resources and relationships, and they would be a great partner.'' Mukesh Ambani's Reliance and DE Shaw on March 27 announced a joint venture to provide financial services as the rising middle class provides an opportunity to sell advisory services. DE Shaw Financial Services will have a six-member board with equal representation from both. Alok Agarwal, CFO, RIL, Muralidhara Kadaba and Kandasamy Sethuraman will represent RIL and Salkind, Anil Chawla and Julius Guadio for DE Shaw. "At the intersection of finance and technology, we can create a new kind of financial services firm," said Salkind. The venture will set up a nonbanking finance company for lending and have a brokerage. It will float private equity funds that will invest in Indian companies. Investment banking and corporate banking will follow in the next few years, said Anil Chawla, chief executive at DE Shaw India Advisory Services. "The trend now is that there are a lot of under-financed sectors like real estate, infrastructure and promoter finance,'' said Abhizar Diwanji, head of financial services at consultants KPMG. "These are the areas where banks have reduced lending. Hence, there is fairly a big market to fund these areas." Prime Minister Manmohan Singh is estimating an investment of $1 trillion to build roads, ports and other infrastructure that will help firms such as DE Shaw to build their business. "Indian customers will demand low-cost, convenient banking," Boston Consulting Group (BCG) said in a report. "Customer information management and analytics will be major IT trends in retail banking." BCG forecasts mortgages at . 40 lakh crore by 2020 and that wealth management will grow 10 times in the same period. "You can never be wrong betting on India in long-term,'' said Salkind of DE Shaw, which has more than half its total of about 1,500 staff in India, plans to hire about 100 more. "TheIndianmarket is still in the process of modernising, and so there is an opportunity to take advantage of the secular growth story.'' New Designs • The DE Shaw-Reliance JV will set up a non-banking finance company for lending and a brokerage • The JV will float private equity funds that will invest in Indian companies • The partners also plan to launch investment and corporate banking services in the next few years