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ôWhatÆs interesting about this deal is that itÆs a greenfield JV,ö notes Peter Alexander of Shanghai-based consultancy Z-Ben Advisors. ôWe havenÆt seen those for a few years.ö
This announcement follows last monthÆs JV agreement between Aviva Group unit Morley Fund Management and China National Oils, Foodstuffs and Cereals Corporation (Cofco) to also establish a greenfield operation. It suggests a trend that the China Securities Regulatory Commission (CSRC), which is said to have dissuaded greenfield deals in favour of acquisitions in existing fund houses, has relaxed this position, says Alexander.
David Jiang, Tokyo-based Asia Pacific MD at BNY Mellon, says the firm was keen on either a greenfield or a small acquisition from the start. ôThe market for acquisitions has become limited,ö he notes. ôWe decided a greenfield business offered the right balance of risk and return.ö
Although the parents have yet to file the paperwork with the CSRC, he says the regulators have been ôopen-mindedö about JV structures.
More importantly to BNY Mellon, however, was the fit, according to Jiang. First, Western is the only securities company out of the 18 to be given top ratings in business quality by the CSRC to not have any existing stakes in asset management companies. Chinese law now allows a brokerage to have one controlling and one minority stake in fund houses, and all the other well-run securities firms have at least some exposure. Second, Jiang says the firmsÆ cultures mesh, with an emphasis on long-term development.
BNY Mellon has been rumoured to be looking to enter the mainland funds market for some time. It already sub-advises Shenzhen-based China Southern Fund Management on its $4 billion QDII mutual fund, while its global custody affiliate, BNY Mellon Asset Servicing, was appointed by ICBC as overseas custodian for that fund.
This is not going to present BNY Mellon with any conflict of interest, however, says Jiang. To win approval for managing QDII funds requires several years of track records so the new JV will not be working in that space for quite a while.
Z-BenÆs Alexander speculates that BNY Mellon would not have been able to do a deal with China Southern Fund Management. Its management (as well as the regulators) are believed to prefer independence.
Western was founded in 2001 with RMB1 billion of registered capital. It has 34 branches and 20 securities services offices around the nation, and through its discretionary asset management business already manages RMB14 billion. Observers note Xian is home to many industries and offers a potentially lucrative market, although the firmÆs ambitions are national.
The JV will start off managing local retail fund products. The initial priority is to create brand awareness among banking and securities company distributors.
For BNY Mellon, this deal is part of an ongoing process to internationalise its primarily US-based business, says Ronald OÆHanley, president and CEO. Meanwhile for Western, the JV is a chance to gain an international partner with asset management expertise, allowing the JV to eventually tailor more sophisticated products, says Liu Jianwu, chairman of Western.
The two partners have agreed on a candidate to serve as CEO, a Chinese national within the BNY Mellon organisation, but this has yet to be confirmed. Whether either parent will second executives to the JV has yet to be determined.
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