Most of the global fund managers lining up to ink joint ventures in Chinese asset management are industry giants, the likes of JPMorgan and Allianz, dealing with local groups that often have provincial or municipal government shareholders. But one of the most innovative agreements involves the US arm of an emerging-market offshore funds manager based in the Cayman Islands on the one hand, and a wholly private sector Chinese partner on the other.
Shimoda Capital Advisors is a financial consultant and money manager, primarily of emerging market funds, including private equity vehicles, and of funds of funds. Based in the Caymans but with SEC- and FSA- registered entities in the US and the UK, its clients are mainly offshore institutional investors, private banks and high-net worth individuals. Its US arm has signed an agreement with Shanghai-based Jinsin Trust and Investment Company, a wholly private company which manages $1.2 billion worth of fixed income, private equity and public equity funds in China; and runs brokerage, research and investment banking businesses.
Once the China Securities Regulatory Commission approves the JV application, Jinsin will establish a fund management company, Western Explorer, in which Shimoda will take a stake. Western Explorer funds will be offered to domestic investors and invest in companies listed on the Shanghai or Shenzhen stock exchanges that are based in, or have strong business ties with, China's western provinces.
"The managers at Jinsin have extensive experience in China's west, and see government initiatives to develop the region as providing a great upside in western companies," says Seth Freeman, a managing director at Shimoda and CEO of San Francisco-based EM Capital, which helped execute the Shimoda-Jinsin deal.
The two sides also are keen for Western Explorer to launch funds available for international investors, once CSRC approves such a move. "There are a couple of ways of doing it," Freeman notes. "Shimoda could manage the funds with Jinsin acting as our co-advisor...I'd hope some kind of arrangement is just a few years away."
So how did this deal come about? Freeman says it was a matter for both sides to find the right partner.
Jinsin had been in talks with a large international financial company about entering an asset management JV. But it wanted more in the way of service and technological sharing. Shimoda, on the other hand, had negotiated with several potential domestic partners but was sceptical about the approach of global banks providing a lot of pro bono work in the hope of getting a quid pro quo down the line.
Jinsin and Shimoda met via a matchmaker, Honolulu-based United Horizon Investment Group (UHIG), a financial services boutique with Asian expertise. UHIG's CFO, Hanney Yin, had contacts at Jinsin and knew the firm sought a foreign advisor and partner for asset management. She also knew of Shimoda's emerging markets background, and put it in touch with Freeman and David Mapley, Shimoda's CEO.
Freeman says the relationship kicked off not with promises but with Jinsin paying fees for Shimoda's advisory services. "Jinsin is committing substantial resources to create a first-rate fund management company and is embracing international standards," he says. "The environment there is really more midtown Manhattan than an emerging market in terms of the commitment to get things done."
He adds Jinsin is an attractive partner not just because it pays up front for services, but because its shrewd private-sector approach to adopting information and skills, and its ability to be creative and differentiate its products.
Like all fund management JV applications now sitting with the CSRC, the details of ownership and management have yet to be finalized. Freeman says the actual JV is the second step after getting Western Explorer off the ground. He adds that based on the aggressive corporate style at Jinsin, these issues can be resolved without too much difficulty. "The principle is that Jinsin wants Western Explorer to be top class, and it recognizes the value of having foreign partners," he says.