Report: SocGen to sell stake in China JV

Added 12th September 2016

Societe Generale is mulling the sale of its 49% stake in Fortune SG Fund Management, China’s 16th largest mutual fund house, according to industry reports.

Report: SocGen to sell stake in China JV


According to a Reuters report, the potential buyer is New York-based Warburg Pincus, a private equity firm.

The French bank has held the minority stake since Fortune SG was set up in 2003. State-owned Baosteel Group owns the remaining 51%.

Cut-throat competition pushed SocGen to consider the sale, the report said. On the other hand, Warburg Pincus believes China's $1.2trn mutual fund industry will deliver strong returns in the long run, the report quoted sources as saying.

Shanghai-based Fortune had RMB 157.5 bn ($23.6bn) in assets under management at the end of June, according to the Asset Management Association of China.

The value of the deal was not disclosed, the report noted, but by some estimates it could fetch 2-3% of assets under management, which would translate to over RMB 3bn if the full 49% stake is sold.

The potential sale followed London-based Ashmore Group's sale of a 32% stake in Ashmore-CCSC Fund Management. Ashmore now holds a 17% stake.

Z-ben Advisors, a China consultant, believes “this is just the beginning of a corporate action spree that should involve a wider variety of both foreign and domestic players” after an explosive expansion of the mainland mutual fund market in the past three years.

"In general, it is the combined trends of current industry restructuring (some existing firms are under group restructuring now) and the forthcoming wider market opening to foreign participants," Ivan Shi, head of research at Z-ben explained.

Some of the sales are due to fund houses keen on establishing their own brands in China. Past examples include Hong Kong-based Value Partners, which exited its holdings in joint-venture Golden Capital Fund Management at a net loss of RMB 34m in October last year.

Instead, Value Partners was granted a Qualified Domestic Limited Partner (QDLP) quota of $100m the same month through its wholly-foreign owned enterprise (WFOE) in Shanghai.

The QDLP quota allows the sale of offshore products to onshore non-retail investors.

In other cases, some foreign shareholders may not be willing to provide additional capital to their Chinese fund management partners after Chinese regulators recently tightened capital rules on the subsidiaries of mutual fund houses, Z-ben noted.

Morgan Stanley, Australian investment bank Macquarie Group and National Australia Bank have recently exited their trust ventures after China tightened capital rules, the report noted.

On the contrary, JP Morgan, which was granted an asset management WFOE in August, "will continue to support CIFM and will work closely with our joint venture partner," according to the firm's earlier statement.

JP Morgan owns 49% of China International Fund Management (CIFM), a joint-venture with state-owned Shanghai International Trust.

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