The S$11 billion ($7 billion) DBS Asset Management announced it will acquire a 33% stake in Changsheng Fund Management, making it the fourth Sino-foreign JV deal sealed in the past month.

First State Investments and loan-resolution group Cinda Asset Management announced the establishment of their Shenzhen-based JV, First State Cinda, in late April. Then two pending deals were finalised in the past two weeks, one between Banca Lombarda and Guodu Securities, and another between Lord Abbett and Yangtze Securities.

Now DBS and Changsheng have reached an accord after years of negotiations and technical cooperation.

The wheeling and dealing reveals not only foreignersÆ appetite for a slice of the Chinese funds industry remains large, but that even the most established of ChinaÆs home-grown players feel pressure to team up with foreigners in order to remain competitive.

This latest deal also shows a healthy realism. In the past, owners of Chinese fund companies û often securities companies or government investment arms û insisted on selling at a multiple of what they paid for their stake, regardless of the valuationÆs merit.

The DBS/Changsheng transaction, however, seems reasonably priced. DBS-AM will pay RMB175 million ($22 million) in cash for the 33% stake. That equates to 2.67% of ChangshengÆs total assets under management of Rmb19.8 billion ($2.5 billion).

Peter Alexander, consultant at Z-Ben Advisors in Shanghai, believes DBS-AM got a cheaper price than some recent deals with firms of comparable size and position to Changsheng, including Deutsche Asset ManagementÆs acquisition of a stake in Harvest Fund Management, and UBS Global Asset ManagementÆs tie-up into China Dragon Fund Management. And itÆs much cheaper than deals on offer in 2003-04, when sellers demanded 4-6% of AUM.

It is not clear, however, to what extent DBS-AM has negotiated a say in how Changsheng is run; the partners have not indicated that senior DBS-AM people will be seconded to executive slots in the JV. Moreover, ChangshengÆs business is not as diverse as, say, HarvestÆs: it is more dependent on mandates from the National Council for Social Security Fund, without which ChangshengÆs AUM is only Rmb11 billion. So both Changsheng and DBS-AM seem to be getting a reasonable deal, reckons Alexander.

Changsheng is one of ChinaÆs æOld 10Æ fund houses, one of the original 10 firms set up in the late 1990s. For years, these houses resisted giving away control or substantial interests to foreigners except at prohibitive prices. But as AsianInvestor magazineÆs May, 2006 edition noted, only the biggest û Boshi, China Southern and Huaan û have been able to remain credibly independent. So have newer players with superb performance, such as E-Fund and Guangfa.

Others such as Harvest and Fullgoal have accepted foreign partners, while China Asset Management (Huaxia) was recently acquired by Citic Securities. This has left the smaller members of the Old 10 vulnerable and therefore realising the need to secure foreign partners. The government has also been keen to see foreigners buy stakes in existing firms to introduce technology and expertise, rather than add to a crowded field with new companies.

The Changsheng move will no doubt put pressure on these smaller Old-10 holdouts and their primary shareholders, which include: Dacheng (48% Zhongtai Trust & Investment, 25% Everbright Securities, 25% Galaxy Securities), Guotai (24% each Shanghai State-owned Asset Management and Guotai Junan Securities, 20% each AJ Trust & Investment and Wanglian Securities) and Penghua (50% Guosen Securities).

DBS-AM is buying its stake from all three of ChangshengÆs existing shareholders, including 8% from Guoyuan Securities, 13% from Anhui Provincial Innovative Investment and 12% from Anhui Provincial Investment Group. After the deal is completed, Guoyuan Securities will retain a 41% stake.