HSBC has agreed to acquire 82.19% of fund administrator Asset Management Technology (AM TeK) for W14.88 billion ($12.47 million), to be paid in cash. It also aims to purchase up to an additional 8.28% from Daehan Investment & Securities Company, AM TeK's largest stakeholder, and other shareholders. The acquisition values AM TeK at W18.1 billion ($15.18 million).
This deal will put HSBC in a dominant position in Korea's fund administration industry, which until now has been a graveyard for foreign acquirers. Both Deutsche Bank and State Street, which entered the market in 2000 and 2001 respectively, threw in the towel earlier this year.
The big difference is that HSBC is buying a controlling stake, whereas Deutsche and State Street had only been able to secure minority positions in joint ventures with A-Brain and Korea Exchange Bank. Therefore they couldn't exert management control to stop the local partners from expanding outside core business areas, and also found that a minority position also brought potential financial liabilities.
But A-Brain and KEB were the only fund administrators independent of a securities company and its fund management affiliate - in other words, the only ones that could attract substantial third-party business. So the local players could call the shots. Most independent funds are in the relatively new category of mutual funds (as opposed to contract-type unit trusts, which dominate), and A-Brain has the lion's share of that segment.
HSBC, however, has found a securities firm willing to wash its hands of fund administration so it and its affiliate may concentrate on fund management. Daehan had already outsourced fund admin to AMTek, a subsidiary, and was willing to sell it entirely.
AMTeK, moreover, is the country's biggest fund administrator, with W29 trillion ($24 billion) of assets under administration. Acquired by HSBC Asia Pacific Holdings, it will become the only foreign-owned administrator in Korea.
HSBC already has a Korean trust and custody business, and has offered trustee services to unit trusts for several years. "No other foreign house does trust and fund administration," says Alastair Murray, head of institutional financial services at HSBC Trustee in Hong Kong. "We think this will be attractive to both the big foreign players as well as local fund managers seeking international best practice."
He believes the combination of trust, custody and administration will help AMTeK grow its already large market share. The timing is good, he says, noting that a new law in Korea will require all fund managers to outsource trustee work to non-affiliated providers. "We think the timing is pretty good," Murray says.
HSBC has no plans to change AMTeK's management, although it will deploy someone to act as the firm's COO, as well as second a few staff to support AMTeK's management in sales, marketing and operations.