US financial services firm BNY Mellon Corporation is set to sell out of its China joint venture to Shanghai-based wealth management firm Leadbank, Chinese media report.
The deal to exit BNY Mellon Western Fund Management is expected to be finalised very soon, the Chinese-language Securities Times reports. Rumours circulated after the JV’s general manager, Chen Zhe, quit the firm on May 20.
The exit, if confirmed, shows how the strategic value of mutual fund licences has diminished, suggests Howhow Zhang, research director at Shanghai-based consultancy Z-Ben Advisors.
It comes after the China Securities Regulatory Commission (CSRC) revised the rules to allow securities firms, private funds and insurance companies to enter the mutual fund industry for the first time. The rules came into effect last June.
“China’s asset management landscape has changed since the revised fund law come into effect,” observes Zhang. “Foreign managers have alternatives to enter the asset management industry apart from [gaining] a mutual fund licence.”
As such, he expects more foreign managers to divest their stakes in their Chinese joint ventures, and pursue other industry avenues in China.
In 2010, Belgian financial group KBC sold its stake in its loss-making China JV KBC Goldstate Fund Management to Hong Kong-based Value Partners.
BNY Mellon and Western Securities set up their joint venture in 2010, with the foreign partner taking the maximum stake allowed at that time, 49%, and the Chinese securities firm a majority 51%.
So to sell out BNY Mellon would have to offload its 49% holding, but details over the size of the equity sale were not disclosed.
The JV, BNY Mellon Western Fund Management, has struggled. Its mutual fund AUM had sunk 22% this year to end-March to stand at Rmb362 million ($16 million).
That saw it slide down the rankings to become the 81st largest fund management firm out of a universe of 84 in China that Haitong Securities tracks.
It reported losses of Rmb133 million and Rmb434 million in 2012 and 2013, respectively, according to the annual reports of Western Securities.
The JV operates four mutual funds: an actively managed equity fund with Rmb257 million in AUM; a hybrid fund with Rmb29 million; and two bond funds with a combined Rmb77 million.
In China, the break-even point for actively managed equity funds is put at Rmb5 billion in AUM, Nathan Lin, general manager of GF International, recently told AsianInvestor.
Foreign fund houses had initially rushed to set up JVs with Chinese partners as a means to enter China’s potentially lucrative asset management industry.
Leadbank was set up in 2008. The firm operates wealth management, fund distribution and financing businesses, according to its official website.
BNY Mellon has $1.1 trillion in overall AUM. The firm declined to comment for this article.