Martin Currie and APS Asset Management have announced a strategic partnership to give Martin Currie sole global distribution rights to APS’s China A-share investment strategies.
The move was sparked earlier this summer when an alleged conflict of interest prompted Martin Currie to part ways with its long-standing China equity manager, Chris Ruffle.
The conflict involved Ruffle’s decision to buy a convertible bond in 2009 that led to losses and regulatory concerns. Ruffle, who has decided to run his own China investment business, denies engaging in any conflict of interest, and the matter has been settled as far as regulators are concerned.
But it led to Martin Currie’s decision to sever relations with Ruffle. That is a blow, because Ruffle’s track record and tenure have been important to Martin Currie’s success, and he managed nearly $5 billion of assets, nearly a third of the firm’s total of $16.2 billion.
Moreover, the divorce came at a time when Martin Currie wanted to beef up its revenues and footprint in the region.
Willie Watts, Edinburgh-based CEO at Martin Currie, told AsianInvestor last week that Asia is becoming a more important area for the firm. This is part of its strategic decision in the wake of the global financial crisis to shift its franchise away from UK equities towards global emerging markets.
In 2010, it lifted Kim Catechis and his team out of global emerging-market equity managers from Scottish Widows Investment Partners. The firm is preparing to launch an EM equities product, the first in its range of Sicav funds, in November (regulations pending), which it intends to register for distribution in Hong Kong and also sell on a private-placement basis in Singapore.
Watts says Asian clients now make up only 5% of the firm’s revenue base, a figure he aims to grow over time. He emphasises that the rupture with Ruffle has not affected Martin Currie’s QFII quota, which the firm has held since 2005, and that the firm retains its existing clients and relationships.
Martin Currie needed to move quickly. The structure it held in China involved a joint-venture with Heartland Capital Management, which is 70%-owned by Ruffle and 30%-owned by Ke Shifeng, also a portfolio manager in Shanghai. That winds up in November (Ke has not indicated whether he will remain with the firm after that point. James Chong, who continues to manage Martin Currie’s China Sicav product, will continue in that role.)
According to news reports, the sudden demise of Martin Currie’s A-share portfolios forced it to offer to halve the fees it has charged clients for the remainder of the year; a spokeswoman for Martin Currie says this is not true and asserts no fees have been cut. More urgently, it was facing the prospect of having no fund managers or analysts on the ground in China for a strategy encompassing nearly a third of its AUM (although it has China portfolio managers based in Europe).
The opportunity came out of the blue for APS, a boutique founded by Wong Kok-Hoi in 1995. Lu Lan-Fang, chief financial officer at APS in Singapore, says the $1.3 billion boutique jumped at the chance of winning a global distribution platform.
She says APS was also attracted by the offer because the firms are culturally similar as independent, dedicated equity managers. She says APS’s main role is to manage the Greater China portfolios, but there could be scope to introduce Martin Currie products to its Singaporean investor base. Martin Currie clients get instant access to a well-regarded China equity investment team, with experience in long-only and long-short strategies.
It is understood by sources that the strategic alliance is intended to include a mutual cross-holding of 5% of each firm’s equity, although this is subject to regulatory approval.
The deal will give Martin Currie exclusive global distribution rights to APS’s China A-share funds. In theory it can also sell APS’s Japan or pan-Asian funds, but a spokeswoman for Martin Currie says the firm’s interest lies with the China products.
Moreover, Martin Currie will continue to extend its footprint throughout Asia, an effort likely to include bolstering its investment management capabilities in areas other than Greater China, as well as sales and client service teams.