Korea Investment Management Company (Kimco) is seeking to acquire a 49% equity stake in a Chinese asset management firm – the maximum allowed under regulations imposed by Beijing.
A Kimco spokesman confirms the China project but declines to reveal the target’s name or any transaction details. However, a well-placed source indicates that the firm in question is Soochow Asset Management.
The date of purchase has not been finalised and it is understood that Kimco is not the only party interested in this acquisition, making disclosure a sensitive issue for the firm.
Shanghai-based Soochow was set up in 2007 and is regarded as a lower/middle-tier house with over Rmb10 billion ($1.6 billion) in assets under management. In the third quarter of this year it launched a guaranteed fund that primarily invests in fixed income, raising Rmb700 million.
It is understood that Soochow has been soliciting buyers for the past year and has courted several parties. The move should come as little surprise, as a relatively small firm operating in an environment that has not been conducive to investment and in an industry struggling to grow.
An injection of funds could be a catalyst to expansion for Soochow, although its primary goal is less likely to be valuation than finding a buyer with shared vision for the JV and the industry.
“Many China joint ventures have failed to grow because the parties involved cannot reach agreement on anything,” says the source. “The seller and the remaining shareholders will be very careful about admitting a new party.”
Soochow’s trio of shareholders is Soochow Securities (49%), Shanghai Lansheng Group (30%) and Jiangyin Chengxing Industrial Group (21%).
It is unclear whether Soochow Securities is looking to sell its entire stake to Kimco, or there would be a combination of sellers. But the likely driver is that the seller(s) see promise for higher returns elsewhere and want to reallocate.
But Kimco is under pressure to play catch-up, given that houses from countries such as Korea, Japan and Taiwan are latecomers to China compared with North American and European peers.
Kimco set up a Hong Kong entity in 2009 and last year opened a research office in Shanghai. Last month it launched the first Chinese A-share ETF in Korea – the Kindex CSI300 ETF – having received a $100 million QFII quota from Chinese authorities in July.
But Kimco would not be the first Korean fund house to make such a move, and it is understood numerous domestic rivals are looking to enter China’s asset management industry.
In March this year Mirae Asset Global Investments set up a China JV, Mirae Asset Huachen Fund Management. It has also acquired 60% of Taiwanese firm TLG Asset Management, a subsidiary of Taiwan Life Insurance Company, and established a branch in Hong Kong in 2003.
Meanwhile, Samsung Asset Management has operational entities in both Hong Kong and Singapore, and early last year set out to establish a China operation. While progress has been slow in the latter, industry professionals voice expectations that it will build a presence soon.
Other Korean managers such as Hanwha, KTB, Hi and Asset Plus have also opened representative offices in Hong Kong and China, demonstrating their long-term commitment.
Such an acquisition for Kimco would be a leg-up into China’s funds industry, meaning it would not have to start from scratch in terms of building AUM. “It could be a smart deal two to three years from now, because there are successful examples of China JVs,” the source says.
Regulators in China limit foreign ownership of local asset managers to 49%. It is understood that Kimco’s board officially approved such an acquisition this November.
Kimco, which has $20.1 billion in Asia-Pacific sourced assets by AsianInvestor numbers, was established as a spin-off from Korea Investment Trust Management and Securities in 2000, itself the first domestic investment trust company.