BNY Mellon China JV close to launching in Shanghai
It is supposed to be the 33rd joint venture and 60th company (after China Asset Management's completed merger with Citic Funds early this year) to appear in China's fund management industry.
Hu Bin, CEO at BNY Mellon's planned JV with Western Securities in Shanghai, says all is on track for the firm's setup. Since the China Securities Regulatory Commission gave the firm its green light to start hiring after the Chinese New Year, the firm has already been able to line up a core team for the company's management. He confirms the firm has completed key hires for a CIO, chief compliance officer and chief operation officer. The CEO of Western Securities will step up to become chairman of the firm. These various appointments have been decided, but the names cannot be released as they have yet to receive CSRC approval.
Furthermore, Hu says the Shanghai branch of the CSRC made an on-site inspection about two weeks ago. A further assessment meeting of the JV's readiness is expected to happen in the coming weeks. The three appointments and the meetings are seen as late-stage indicators that the JV is close to receiving a license to begin business. (The JV's chief compliance officer had been a CSRC official in Xian.)
Upon qualification, Hu intends to spend the first three years building a track record and developing a product line that will include equity, balanced, fixed income and index funds. Hu says he wants the business break even within three years and to qualify for QDII status, implying the company intends to gather at least Rmb20 billion worth of assets to meet the CSRC's minimum requirement for QDII qualification.
Further to domestic retail assets, which currently account for the bulk of assets in China's fund management industry, Hu says BNY Mellon Western has its sights set on becoming a QFII advisor. The company will actively pursue QFII sub-advisory deals with foreign institutional investors to bolster its business.
Hu's optimism for the JV's future in China is imperturbable. He is certain of the opportunities ahead of the JV even amidst a background of regulation reform and ever larger concentration in the competition. Based on data provided by Z-Ben Advisors, the top 20 firms in the industry now account for some 70.92% of market share, leaving the other 40 firms chasing the rest. (The top 10 firms account for 47.91%.)
Hu appears unbothered by the recent breakup of the QDII advisory deal between BNY Mellon and China Southern Fund Management. He believes BNY Mellon remains a sound brand with broad recognition in the financial community in China. And the proof is that the JV has been able to attract strong talent to its job interviews.
Hu also points to BNY Mellon's strong relationships with China Construction Bank and ICBC from the international custodian business. The two banks are known to have dominated fund sales in China by having over 50% of all market share. The JV will also be able to leverage Western Securities 30+ branches across China. Western is active in Shaanxi, Beijing, Shanghai, Shenzhen, Shandong and Jiangsu.
Where most new fund entrants tend to sign onto expensive custodian deals and give away a large portion of management fees just to get on a bank's distribution list, BNY Mellon Western's objective is to stay profitable.
Hu will assert a hiring policy that will ensure the JV's independence. Only a total of three staff will come from the BNY Mellon side: Hu himself, his secretary and a chief marketing officer. The rest of the team will be hired locally and in overseas markets. Hu has also been travelling to San Francisco and Boston to recruit overseas Chinese with international asset management experience, whom Hu thinks should make up to half of the company's investment team.
The other half will be local talent with a proven track record in investing in the onshore Chinese securities market, he says. Market speculation suggests that Hu has already managed to poach a CIO from one of three houses: China Southern, Bocom Schroders or Invesco Great Wall. Though Hu wouldn't comment on the appointment until CSRC issues its approval.
Hu has work for BNY Mellon for a decade, straight after completing his MBA in the US. Before moving to the US, Hu received a PhD in a dual engineering programme between Shanghai's Jiaotong University and the City University of Hong Kong. He was responsible for setting up a hedge fund named Coefficient Global under a subsidiary for BNY Mellon in 2006 before taking up the CEO post for the JV at the end of 2007.
The CSRC has frozen the issuance of all new business licenses for fund companies for close to a year. The last firm to be approved by the CSRC was Minsheng Royal Fund Management, a JV between Minsheng Bank and the Royal Bank of Canada, which opened shop in October last year. According to How-How Zhang, an analyst at Z-Ben Advisors, a total of 11 companies are in the queue, six of which will be JVs.
After BNY Mellon Western, the next company expected to receive approval will be Ping An's planned JV with Singapore UOB Group. Other companies also in the pipeline include JVs between Bank of Beijing and Bank of Nova Scotia, Industrial Bank and Natixis, Aviva Investors and Cofco, Huaxia Bank and F&C Asset Management.