First State applies for China fund JV
First State Investments, a unit of Commonwealth Bank of Australia, is awaiting the China Securities Regulatory Commission's approval for a fund management joint venture application with a Shenzhen-based broker that sources have identified as Hantang Securities.
Ian Jenkins, Hong Kong CEO at First State, acknowledged that First State hopes to get the nod soon from the CSRC but would not confirm the JV counterparty. He says the firm's broad strategy is to grow a presence in North Asia, particularly in China.
"We believe the industry in China is a staggering opportunity," Jenkins says. "It's right at the start of developing the capital markets. Alternatives for wealth accumulation are limited. As pensions develop they will need a viable funds industry to service it. There are no entrenched brands or groups and the big global brand names are irrelevant."
He envisages a funds JV targeting both retail and institutional business. "We see the development of a higher-net worth group that's a loosely institutional business," he says.
Although Hantang is based in Shenzhen, sources say the JV will be based in Shanghai. This is partly because Shanghai is seen as an emerging industry hub and a lucrative market, but also because First State's life insurance affiliate, CMG Asia, has a joint venture there with China Life called China Life CMG. Today, life companies may invest up to 15% of their assets into mutual funds, and First State would like to see China Life CMG become an anchor client, particularly as insurance regulations ease investment restrictions. (Commonwealth Bank also has a bank presence in Shanghai.)
Jenkins says First State's approach in a JV is to avoid polarizing the relationship by insisting on a certain number of management roles. He says the firm will not second employees to the JV, but rather the JV will recruit its own management team.
Hantang is a mid-sized broker with registered capital of Rmb900 million. It has 20 shareholders in eight provinces and cities, which is unusual - and an advantage for First State, because Hantang's management was able to speed up negotiations. Other prospective JV deals in China have foundered on resistance from powerful shareholders, but in this case discussions were straightforward.
Hantang lacks a direct distribution capability such as the likes of China Merchant Funds, the JV between ING Investment Management and China Merchants Bank. But it does have 30 sales outlets in cities such as Beijing, Guangzhou, Nanjing, Guiyang and Chengdu, and is known for its online trading capabilities. In January it signed a memorandum of understanding with Hong Kong online financial information and services provider Quam, and has also filed with the CSRC permission to launch a JV brokerage with Taiwan-backed Core Pacific Yamaichi Securities.