The Bank of Montreal is negotiating to take an approximately 15% stake in Shanghai-based Fullgoal (Fuguo) Fund Management, according to sources familiar with the deal. "Bank of Montreal will take a small stake sometime in the middle of the year," says a person following the talks. The Chinese and Canadian governments have recently signed a memorandum of understanding, confirming an earlier MOU between Fullgoal and Bank of Montreal.
Fullgoal is among the original 10 fund managers in China, established in 1999. It has around Rmb10 billion ($1.2 billion) of assets under management from four closed-end funds and one open-ended balanced fund. It has applied to regulators to launch an umbrella fund structure.
Its registered capital of Rmb100 million is shared equally among five current shareholders: Haitong Securities, Shenyin & Wanguo Securities, Huatai Securities, Jufian International Trust and Investment, and Shandong International Trust and Investment. Bank of Montreal's entry would redraw this so the six partners maintained parity.
If the deal is successful, the Bank of Montreal would be expected to assist Fullgoal develop its investment, product design and marketing skills. Although the bank would provide "consulting", in the word of one source, and would seek an active role in running the fund company, it is not clear whether BoM staff would be seconded to senior positions.
To date only one Sino-foreign joint venture has involved an existing Chinese fund manager, the 33% stake ABN AMRO Asset Management took in Beijing-based Xiangcai Hefeng Fund Management. All the others have been greenfield deals with Chinese securities firms. Even the ABN-Xiangcai Hefeng deal involved a brand new fund company without a track record. That gives the BoM-Fullgoal deal some importance, showing the model of buying into an existing firm can work. But to do so, it appears, requires foreigners to lower their demands, and for managers in the existing companies to be more realistic about what their owners will tolerate. "Fullgoal's management is realistic about what its owners want," says a source.
Aside from foreign-exchange capability in Hong Kong, such a deal would mark Bank of Montreal's first real presence in Asia.