China asset managers tipped to spark Asian M&A spree

Asian asset managers will resort to acquisitions soon as growth ambitions overtake organic patience, believes Gerard Lee, CEO of Lion Global Investors.

He was referring particularly to Chinese firms, which have been setting up offices in Hong Kong in increasing numbers in a drive to build their non-Chinese capabilities.

“I contend that they will find growing organically very slow,” Lee countered in a panel discussion on the regional and global growth ambitions of Asian asset managers at the Asia Fund Forum in Hong Kong last week.

He was, in effect, throwing down the gauntlet to fellow panellists Anthony Ho, deputy CEO of China Asset Management (HK), and Lindsay Wright, vice-chairman of Harvest Global Investment – respectively China’s two largest and best-placed fund firms.

Ho had already ruled out any major acquisitions. “We’d like to do this [expansion] on a home-grown basis. We are building investment capability by hiring Asian analysts and Asian portfolio managers to go to the next stage of regional growth.”

But he conceded that China AMC was open to joint-venture talks with overseas firms boasting a strong distribution network – something the firm lacks outside China.

Wright similarly argued that a step-by-step approach to broadening Harvest’s regional investment capabilities was the best approach at this stage.

But Lee was in no mood to let up, broadening his view and tipping Asian asset managers with balance-sheet strength to follow in the footsteps of Nikko AM, which hastened its growth by moving to acquire DBS Asset Management late last year.

“All you need is for someone to fire the first shot in China and the rest will follow,” he said. “I expect others in Japan to follow the path that Nikko has taken, and I expect the Indians and Koreans to do the same.

“So for those of us with small AUM, our strategy is just to be very good at what we are doing and play our game [in the hope of being acquired],” he added, drawing a burst of laughter from the audience.

Panellist Wong Kok Hoi, founder and CEO of APS Asset Management, cited the Government Investment Corporation (GIC) of Singapore – for which both he and Lee have previously worked – as an example of an Asian asset manager that succeeded in building global expertise from a small base of just two dozen staff in 1981.

But Lee disagreed. “The GIC is where it is today because it is not in the business we are in,” he stated. “It has the luxury of time just to invest money and does not have to worry about where to get AUM.

“If you are in the business of supplying and also trying to figure out demand, you have to think about growth organically or inorganically. My contention, with respect to Anthony and Lindsay, is that shareholders will run out of patience with organic growth.”

The panellists all acknowledged the head-start that experienced global asset managers had in proliferating their brand and distribution capabilities, and Ho noted that as a domestic player China AMC couldn’t compete with such global reach.

“And we don’t have the track record [overseas] that we can prove to our potential customers,” added Ho, “yet.”

But he stressed the competitive advantage that China AMC has within the country, with over 60 A-share analysts visiting hundreds of firms every day.

“Right now all companies have some kind of dynamic with China, whether it is consumers or suppliers,” he said. “We have the competitive edge by understanding the macro political and on-the-ground issues, on any sector you can name.

“If we can pick better stocks in the region than global players, I think we have a fair chance [of competing]. But that is a long way off in terms of gaining the confidence and having the track record. Still, I’m optimistic over the next five or 10 years."

Wright, too, focused on the importance of having a clear value proposition, especially for Chinese firms taking their coveted domestic expertise to the world.

But on the prospect of Asian managers selling more Asian products into overseas markets, she is eager to see international investors streamline their allocations away from general emerging markets and offshore Greater China.

“Otherwise to meet [demand for] these categories I think [Asian AMCs] are going to have to expand to have global emerging market capabilities,” reflected Wright. “I wish investors could increase [country-specific] allocations, although I’m confident this will be forthcoming.”