BNP Paribas, IFC team up with Chinese broker

Shanghai-based brokerage Shenyin & Wanguo Securities has signed a technical agreement with BNP Paribas Asset Management to help develop its fund management business.

It follows on the heels of rivals such as Galaxy Securities, which has teamed up with Schroder Investment Management, and Guotai Junan Securities, which is working with Dresdner RCM Global Investors.

This deal has an added twist: the International Finance Corp (IFC), the private-sector arm of the World Bank Group, is a co-signatory.

Other foreign fund managers (such as ABN AMRO Asset Management, Fleming Investment Management, HSBC Asset Management and Invesco) have made similar agreements with Chinese fund management companies instead of brokers because they have greater expertise with funds. Teaming up with a brokerage, however, can provide better distribution capabilities.

BNP Paribas hopes that the entry of China into the World Trade Organization will give it a crack at the nascent fund management industry. Three years after China joins WTO, foreign asset managers can own up to 33% of a joint venture with a Chinese fund management company, with either a local fund manager or securities company as its partner. These Sino-foreign JVs are, for now, the only means for outsiders to participate in the lucrative world of A-share mutual funds.

These technical agreements carry no obligation for Chinese securities firms to enter a JV. Rather, in this case, BNP Paribas and IFC will enhance Shenyin & Wanguo’s research capability, systems to handle open-ended funds, promote corporate governance and ultimately help it obtain global capital markets expertise. In turn, if the relationship works out, Shenyin & Wanguo will provide local market knowledge and, one day, distribution power for a fund management JV.