Ashmore grabs Aviva Investors' stake for China JV

Ashmore Investment Management has stepped in to fill the void after Aviva Investors exited its long-planned joint venture with China Central Securities, it has been confirmed.

The new firm will be located in Shanghai and co-branded Ashmore-CCSC Fund Management Company, Ashmore tells AsianInvestor. No details on the pricing of the transaction have been made public as yet.

"We have been looking for some time to expand our footprint in China,” a spokesman for the emerging markets-focused firm acknowledges.

Noting domestic regulations do not allow a wholly owned foreign asset management firm, he adds: “This venture enhances Ashmore's growth strategy in China as it provides the group with an opportunity to develop a platform to grow a domestic Chinese fund management business.”

Ashmore was granted qualified foreign institutional investor status in 2009 and opened an office in Beijing in 2010. The spokesman adds only that further details will be provided in due course.

Z-Ben Advisors, a Shanghai-based consultancy, paints Ashmore’s acquisition of a 49% interest in the partnership as risky, and describes Aviva Investors’ decision to divest from the relationship as revealing.

It points out that Aviva Investors had been pursuing a JV fund management strategy in China since 2007, when it announced a proposed partnership with Cofco.

Although it was unclear what happened in that case, the UK manager opted to return to the market in search of a new partner and entered into an arrangement with Zhengzhou-based China Central Securities.

But in the absence of a formal reason for a second split, Z-Ben says Aviva’s move this year to reduce focus on the global retail market in favour of institutional asset management likely lies behind the decision.

“Then again, in the past several years it has also proven to be more than slightly difficult to establish a mass retail business in China and Aviva’s patience in this regard may simply have run out,” it adds.

Certainly it is a curious case given Aviva Investors’ five-year dedication to entering the market, combined with a dramatic quickening in the pace of approvals by the China Securities Regulatory Commission.

In response to AsianInvestor queries, a spokesman for Aviva Investors in Singapore says only: “We’re not in a position to confirm anything at this point, but will update you as soon as we can.”

Meanwhile, Ashmore has been going in the opposite direction to Aviva Investors, in that it is largely an institutional manager which is seeking to extend into the retail (and private banking) investor arena.

But its decision to partner China Central Securities could rightly be considered risky given the state of the nation’s fund management industry.

Existing players have found fundraising difficult, while costs are rising for distribution as well as human resources in what is still an increasingly competitive marketplace, notes Z-Ben.

It points to insufficient funding as the most common problem. Ashmore and China Central Securities will have combined investment of Rmb200 million – below Z-Ben’s recommended Rmb300 million minimum.

“Both shareholders will have to keep a close eye on their finances and budget upon opening for operations, as any need for a capital injection could spark a change in shareholder structure,” Z-Ben says. “Ashmore, in particular, will want to keep track of its burn rate once the JV goes live.”

The fact that Ashmore has sought the maximum foreign shareholding limit of 49% indicates it wants to take as active a role as possible, while China Central Securities may also be eager to increase its stake now that the 51% cap on holdings by domestic firms has been lifted.

However, Z-Ben also notes that Ashmore is no rookie in the market, given it already has a 19.99% stake in Beijing International Trust.

While there’s a big difference between a passive stake in a trust firm and a quasi-active position in a fund management venture, Z-Ben says the experience will serve Ashmore well in positioning itself as a stakeholder.

In fact, it suggests having both interests may prove advantageous and allow for a degree of cooperation between the two platforms that would not otherwise be possible, at least for distribution and client access.

While the consultancy acknowledges the near-term prospects for newly established managers appear bleak, it maintains that China’s funds industry will witness a trebling of AUM over the next few years.

“If our projections do, in fact, play out, then the investment made by Ashmore at this time should prove to be quite prescient,” it concludes.