The newly agreed tie-up between Ping An Asset Management's Hong Kong arm and UK-based Merian Global Investors could be a more cost-effective way for foreign fund houses to tap the Chinese market than establishing an onshore branch, argue industry experts.
Similarly, Ping An AM HK might prefer to start building an overseas client base in this manner before committing to putting staff in places such as London or New York, something that it has mooted. And it will need to build a demonstrable track record of managing money for third-party institutional clients before it does so, industry observers have noted.
For Merian, it would cost some $5 million to set up an investment management wholly foreign-owned enterprise (WFOE) in China and keep it running until it starts to make a profit, said Stewart Aldcroft, Hong Kong-based senior adviser for Citi’s investor services unit.
Getting to that point could take more than five years, he noted, so it would be more affordable for smaller firms to enter strategic partnerships with a local player to tap the market.
What's more, boutique asset managers such as Merian – which has £34.6 billion ($44.7 billion) under management – will struggle to compete against their biggest rivals in the fierce battle for Chinese talent.
Most of the largest global fund firms – including BlackRock, JP Morgan Asset Management and Fidelity – already have mainland WFOEs in place and either possess or are seeking onshore private fund management licences.
A DIFFERENT APPROACH
Taking a different approach, Merian – formerly Old Mutual Global Investors (OMGI) – and Ping An AM (Hong Kong) signed a memorandum of understanding on Tuesday (October 23) to strengthen collaboration in areas such as fund distribution and investment advisory. More details about the new tie-up will be unveiled in the future.
The agreement comes after Merian outsourced the running of its China equity fund to Ping An AM in March, following the UK firm’s decision to close its Asian equity desk in Hong Kong.
In addition, Merian may be able to sell its funds to investors in China through Ping An’s domestic distribution network in future.
“Access to the local knowledge and investment advisory expertise of a specialist Chinese asset manager will be of great benefit to our clients,” said Richard Buxton, chief executive of Merian GI, at the time of the partnership announcement.
For its part, Ping An AM HK hopes the tie-up will help it expand its own overseas client base, after a major buildout of its investment capacity and amid continued hiring on the sales side. This has included Ping An AM HK's appointment of Carol Wong, Merian’s former Asia head, last month to help build its institutional business.
Indeed, the partnership agreement has come at a time when the subsidiaries of China’s biggest insurers are striving to expand their third-party businesses.
“This strategic relationship actually marks the beginning of our successful transformation to becoming a truly third-party asset manager from purely managing our in-house insurance capital,” Hoi Tung, co-chief investment officer of Ping An Insurance and chairman and chief executive of the group’s overseas insurance business, said in a press briefing on October 23.
TRACK RECORD NEEDED
The money run by the asset management subsidiaries of Chinese insurers tends largely to comprise the investment portfolio of their parent groups. But Ping An AM is now eyeing assets of third-party institutional investors and is keen to build a distribution network for its products, including private credit, private equity and hedge funds.
One area for collaboration between the two fund houses is quantitative investment, Tung said, which is one of Merian’s strengths. Ping An AM has been ramping up its quantitative investment capabilities for both its parent insurer’s general portfolio account and its third-party client business, he has noted.
However, Ping An AM’s potential clients will want to know how much of its AUM comes from third parties, said the business head of a Chinese fund house's Hong Kong unit.
Outside investors will need comfort that an asset manager runs money for clients with similar investment standards and assessment points to their own, he told AsianInvestor. The partnership with Merian may help Ping An AM HK attract such institutions.
Ping An AM HK declined to disclose the amount of assets it manages and how much of those are from third-party clients. Ping An Insurance declined to comment for this story.