The transformation of China AMC into a joint-venture fund management company following widely publicised stake sales is expected to enable it to bolster its competitive position.
The firm, the largest fund management company in China, has been banned from launching products since last year and yet has been able to increase market share at a time when Chinese fund managers have become reliant on product launches to support AUM.
“Having been forced to fight with one hand tied behind its back, China AMC has been able to leverage strong performance [and timely dividend payments] to retain investors,” notes Francois Guilloux, regional sales director at consultancy Z-Ben Advisors.
“As a result of successful divestment on the part of its shareholder [Citic Securities], China AMC will soon be able to launch new products. Combined with the firm’s well-honed asset retention tactics, the industry heavyweight will soon find itself in an extremely strong competitive position.”
Citic Securities listed its 51% majority stake in China AMC for sale on the Beijing Financial Assets Exchange (BFAE) on July 5 at an asking price of Rmb8.16 billion ($1.3 billion). This was divided into four tranches of 10% and one of 11%. Four of these bids were required to come from domestic non-financial state-owned enterprises.
Late last week it was announced that Power Corporation of Canada had picked up a 10% stake at Rmb1.78 billion – thereby becoming the sole foreign shareholder, pending regulatory approval.
During the bidding process, US investment manager T Rowe Price was consistently named as a frontrunner for the stake, and speculation now surrounds whether the firm walked away from the negotiating table or was outbid. However, T Rowe Price has never confirmed its involvement.
Power Corporation is a Montreal-based conglomerate with assets in North America and Europe in a number of industries. It also owns a stake in Boston-based asset manager Putnam.
Paying about a 12% premium for its stake, the price is regarded as a bargain by Z-Ben “particularly given even conservative growth estimates for China’s asset management industry”, notes Guilloux.
At present, mutual funds account for less than 3% of retail investor portfolios, and Z-Ben expects much of the country’s wealth currently held in cash to flow into the mutual fund segment. “Power Corporation is now extremely well positioned to capitalise on this inevitable shift,” he adds.
In a statement, Paul Desmarais, Power Corporation’s chairman and co-CEO, says its purchase was an opportunity to invest in an industry-leading fund manager in one of the world’s largest economies, where there is a growing demand for financial services.
Two of the domestic buyers of the China AMC stakes were named as South Industry asset management company (Rmb1.76 billion for 11%) and Shandong Rural Economy Development Investment Corporation (Rmb1.6 billion for 10%).
The former is the investment arm of state-owned China South Industries Group and engages in private equity, asset management and investment advisory. It is already a strategic investor in several financial institutions including Industrial Bank, China Life and Ping An Group.
State-owned Shandong Redic, meanwhile, is tasked with helping to develop the rural economy through its investments, including agriculture production and international trading as well as infrastructure.
Given that Citic Securities has now withdrawn the announcement on the BFAE, it appears the two remaining 10% bids have been confirmed, although not publicly.