Haitong blazes a trail for Chinese peers in Europe

While Chinese fund houses have been setting up London offices as they attempt to crack the European market, Haitong Securities has bucked the trend.

Haitong, which bought Banco Espírito Santo de Investimento (BESI), the Portuguese lender Novo Banco's investment banking arm, in a €379 million ($412 million) deal last December, has been unique in its approach.

The Portuguese deal saw Haitong become the first mainland Chinese group to make a European financial acquisition.

Its Chinese peers in London have meanwhile adopted an organic growth approach, with Harvest Investment Management having set up an office earlier this year, as has Shanghai’s Nord Engine Capital, a private equity group.

Speaking to AsianInvestor in London, BESI’s UK chief executive Luis Luna Vaz noted that Haitong’s acquisition of the bank could facilitate access to its existing European clients that its peers do not have.

“I think the key challenge is that you have to differentiate yourself from what is in the market,” said Vaz, noting that Haitong’s acquisition automatically gives it a network of existing clients.

“What you see so far is that Haitong is the only one doing an acquisition of a European-based bank, so we hope to be able to create a little more deep penetration into the market,” said Vaz, referring to its presence in the UK, Spain, Poland, the US, Brazil and Angola.

But whether it will remain the only Chinese fund house tapping the European market through acquisitions remains to be seen. Vaz suggests that US banks’ acquisitions in the UK, following Margaret Thatcher’s “Big Bang” deregulation in 1986, serves as an example of how Chinese financial groups could act in the future.

While Haitong’s acquisition is still awaiting regulatory approval, preliminary plans would see the Chinese fund house launch an asset management arm as part of a wider strategy to build up a financial group in the UK alongside BESI’s existing investment banking business.

Specifically, it is envisioned that Haitong will be able to exploit BESI’s client networks and offer Haitong’s funds to western European investors at a time when interest in mainland Chinese assets is taking off.

“The key priority in the beginning of the business is that we are capable of linking western European investors into what Haitong has to offer… leveraging our experience here in Europe and our connectivity in Europe and access to pools of liquidity in Europe,” said Vaz.

Product offerings could include emerging market equities, exchange-traded funds, and emerging market fixed-income, including high-yield bonds. Initial stages would likely see segregated accounts before funds are created. There is also talk of applying for a renminbi qualified foreign institutional investor (RQFII) quota.

But with European competition intensifying, such as GF International Investment Management eyeing a London base alongside Harvest’s existing presence, Vaz admits there could be challenges along the way.

One challenge he does not expect is cultural clashes. Despite many Sino-Western partnerships failing, most recently the joint-venture divorce between Russell Investment and Ping An, which was blamed on differences in investment and business philosophy, the question remains as to whether working with mainland Chinese companies can be difficult.

Vaz disputes this, citing the joint venture between Haitong and Fortis - HFT Investment Management - in mainland China as a successful case study.

“The Portuguese in nature have always for historical reasons been receptive to foreign culture,” said Vaz. noting the country’s overseas trade and expansion over the centuries.

“We are always a country with a very easy way of dealing with different cultures so that is one of the reasons why such a small country has had such a big reachout in many countries in the world,” said Vaz.