CLSA and Shanghai Gosheng have reached an in-principle agreement to establish a joint venture asset management company as a platform to launch a domestic renminbi-denominated investment fund in the Shanghai Pudong International Financial Centre region.
The tentative name of the JV is Guosheng CLSA (Shanghai) Industrial Management Co Ltd. There is currently no name for the fund.
The collaboration, which was announced at the signing of a memorandum of understanding in Shanghai yesterday, aims to leverage the strong growth in China's market to invest in industries with significant potential for absolute capital gains, such as renewable energy, green environment, consumer and heavy machinery sectors. The fund will favour investments based in, or related to, the further development of the municipality of Shanghai.
CLSA and Guosheng are expected to be the largest shareholders in the company with equal shareholding. The fund will target Chinese domestic institutional investors and won't be open to foreign investors. Indeed, CLSA was clear to point out that the new fund has a different mandate to that of those managed by CLSA Capital Partners. As an RMB, domestic investment fund for mainland institutional investors, the new fund is focused on development of the municipality of Shanghai. CLSA Capital Partners manages US dollar funds for international investors across Asia, including China. This new fund will not conflict with those investment activities, said a spokesperson.
The target capital commitment of the fund is Rmb10 billion ($1.4 billion). CLSA and Shanghai Guosheng plan to form the new company before the end of this year and the fund will be launched following that.
The fund will target institutional investors and the minimum investment required will be decided in due course, according to sources. CLSA declined to say how much it is investing in the fund.
Shanghai Guosheng is a state-owned investment holding company, which has registered assets of Rmb10 billion. CLSA Asia-Pacific Markets bills itself as Asia's leading, independent brokerage and investment group, providing equity broking, capital markets, merger and acquisition, and asset management services to global corporate and institutional clients.
This joint venture is expected to be the first Sino-foreign asset management company established by a large-scale Shanghai state-owned enterprise and a well-known foreign investment group since the State Council announced in April this year its intention to transform Shanghai into an international financial and shipping centre. The joint venture is the first for Guosheng following the merger of Shanghai Shengrong Investment Co and Shanghai Dasheng Asset Co into Shanghai Guosheng (Group) in September 2007.
CLSA chairman of China CG Wu said the joint venture demonstrated Guosheng's confidence in CLSA and in China's growth potential. "We are honoured to be the first foreign firm to partner with Guosheng since its formation and we believe that our significant experience in China will ensure the success of this initiative," he said in a press release.
"CLSA believes there is significant growth opportunity in renminbi-denominated funds given the growth of the Chinese fund market and the growing demand for consolidation and financing from fast-expanding companies in China," Wu said.
Guosheng chairman Derong Shi said as an industry investment platform in Shanghai and an operation platform of state-owned assets, Guosheng Group's mission is to drive the adjustment of industry structure in Shanghai. By establishing an investment fund jointly with CLSA, Guosheng aims to participate in the new round of economic transition and development of emerging industries in Shanghai. It will explore ways to allow SOEs to enter the asset management business arena.
"The economic transition in Shanghai and in China provides a unique opportunity for an equity investment business. Cooperation between SOEs and foreign institutions will combine the advantages and competitiveness of both parties. CLSA's research-driven investment approach and experience in China, and our common values, make CLSA the most attractive partner. I am confident this joint venture will attract significant investment from the institutional market and provide an excellent return for investors," Shi said in a press release.
CLSA officials said they will work closely with Guosheng over the coming months to roll out the new business. CLSA chairman and CEO Jonathan Slone said the joint venture advances the company's China expansion strategy.
"The long-term growth story in China clearly favours a greater role for renminbi-denominated domestic funds and we look forward to working with Guosheng to ensure the success of this new business. This perfectly complements CLSA's existing joint venture China Euro Securities Limited which is focused on investment banking and broking," Slone said in a press release.
A CLSA spokesperson added that "with these two JVs our business in China now reflects the three principle areas of focus of our global business: broking, investment banking and asset management".
Earlier this year, CLSA decided to start covering US stocks (for more on this, see FinanceAsia's March 27 story: Deutsche's Mike Mayo heads to CLSA), and it also launched in Australia where the firm now offers primarily broking services to institutional investors (for more on this, see AsianInvestor's January 19 story: CLSA expands to Australia).