Franklin Templeton plots China JV buyout, institutional push
Even as political tensions are seemingly rising by the day between Beijing and Washington, appetite to invest in China appears undimmed among asset owners and fund managers.
A case in point is Franklin Templeton, which aims to acquire the remaining 51% of its mainland asset management joint venture, Franklin Templeton Sealand. Moreover, the firm, which has just completed its purchase of rival Legg Mason, is understood to be planning a substantial buildout of its onshore mainland presence with a view to expanding its domestic and offshore institutional client bases and attracting local pension and private wealth business.
Franklin Templeton took another step down this path by winning a qualified domestic limited partner (QDLP) licence in June. This will allow its Shanghai-based wholly foreign-owned enterprise (WFOE) to invest in offshore assets on behalf of onshore clients under a pre-assigned quota. The firm is preparing a QDLP fund that will launch within the next two months, a spokeswoman told AsianInvestor, declining to provide further details.
“China represents a huge opportunity for us,” the spokeswoman said. “It has always been our intention to become the majority shareholder of the JV, and that has not changed. In the meantime, we continue to explore the most appropriate corporate structure to best serve Chinese investors.
“We welcome China’s decision to further liberalise the financial market and open up to greater foreign participation,” she added. “Franklin Templeton is fully committed to China and has consistently been an early investor and embraced every point of entry made available to the Chinese market.”
Both Franklin Templeton and Legg Mason have onshore China WFOEs. And the merged group appointed Linda Liang as head of China strategy when it announced its Asia management team this month. Liang will lead the decisions on expanding mainland operations, but the spokeswoman said it was too early to provide more detail on her plans.
ONSHORE AND OFFSHORE OPPORTUNITIES
But it is clear that Franklin Templeton – like numerous other big fund managers – aims to tap both onshore and offshore institutional business in relation to China, according to well-placed sources.
As index provider MSCI increases its weighting to China stocks in its emerging market benchmarks, there will be a growing global demand for Chinese exposure. And, the unnamed sources say, Franklin Templeton’s management believes that most international institutional clients will feel more comfortable investing into China with a global group they know than with a purely domestic Chinese asset manager.
The thinking, AsianInvestor understands, is that firms such as Franklin Templeton have a standard of compliance and risk management to which international asset owners are used, as well as experience of investing in mainland China.
That certainly appears to be true of institutions that are relatively new to investing in Chinese assets, such as Coal Pension Trustees, which manages the UK's two legacy coal industry retirement funds. But some asset owners more familiar with the mainland market – such as Dutch pension fund manager APG or Norway’s sovereign wealth fund – do employ local fund houses, which often charge lower management fees than their Western peers for China strategies.
Onshore, meanwhile, Franklin Templeton is eyeing China’s rising middle class, high-net-worth clients and the third pillar of the country’s developing retirement system – the personal pension market. The sources say that the firm also sees a huge opportunity in the domestic institutional space, advising sovereign wealth funds, pension funds and insurance firms, which invest both locally and globally.